As filed with the Securities and Exchange Commission on November 6, 1996
Registration Statement No. 333-12565
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM SB-2
AMENDMENT NO. 1 TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
UNITY BANCORP, INC.
(Exact Name of Small Business Issuer in Its Charter)
Delaware 6712 22-3282551
-------- ---- ----------
(State or Other (Primary Standard (IRS Employer
Jurisdiction of Industrial Identification
Incorporation or Classification No.)
Organization) Code Number)
64 Old Highway 22, Clinton, New Jersey 08809
(908) 730-7630
- --------------------------------------------------------------------------------
(Address and Telephone Number of Principal Executive Offices)
64 Old Highway 22, Clinton, New Jersey 08809
- --------------------------------------------------------------------------------
(Address of Principal Place of Business or Intended Principal Place of Business)
Unity Bancorp, Inc.
64 Old Highway 22
Clinton, New Jersey 08809
Attn: James Hyman
President and
Chief Operating Officer
(908) 730-7630
- --------------------------------------------------------------------------------
(Name, Address, Telephone Number of Agent for Service)
----------
With copies of communication to:
McCarter & English
Four Gateway Center
Newark, New Jersey 07102
Attn: Robert A. Schwartz, Esq.
(201) 639-2093
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
CALCULATION OF REGISTRATION FEE
================================================================================================================================
<CAPTION>
Title of Each Amount to Proposed Proposed Amount of
Class of be Maximum Maximum Registration
Securities to Registered Offering Aggregate Fee
be Registered Price(1) Offering
Price
------------- ---------- -------- --------- ------------
<S> <C> <C> <C> <C>
Units, each consisting of 401,500 $16.50 $6,624,700 $2,285
one share of Common Stock, Per Unit
no par value, and one
Warrant to purchase one
share of Common Stock
Common Stock, 401,500(2) $17.00 $6,825,500 $2,354
no par value(2) Per Share
Total ............................................................ $4,639(3)
================================================================================================================================
</TABLE>
- ----------
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Issuable upon exercise of the Warrants.
(3) $3,876 of this fee was paid upon the original filing of this Registration
Statement.
----------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
<TABLE>
UNITY BANCORP, INC.
Cross Reference Sheet Form SB-2
<CAPTION>
Prospectus Caption or
Items of Form SB-2 Location
- ------------------ ---------------------
<S> <C>
1. Front of Registration
Statement and Outside Front
Cover of
Prospectus ............................................... Facing Page of
Registration Statement;
Front cover page of
Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus.................................. Inside Front Cover Page;
AVAILABLE INFORMATION;
TABLE OF CONTENTS
3. Summary Information and Risk
Factors ................................................... PROSPECTUS SUMMARY;
SPECIAL CONSIDERATIONS
AND RISK FACTORS
4. Use of Proceeds............................................ USE OF PROCEEDS
5. Determination of Offering Price............................ THE OFFERING -- PLAN OF
DISTRIBUTION
6. Dilution................................................... Not Applicable
7. Selling Security-Holders................................... Not Applicable
8. Plan of Distribution....................................... THE OFFERING; PLAN OF
DISTRIBUTION
9. Legal Proceedings.......................................... BUSINESS
10. Directors, Executive Officers,
Promoters and Control Persons.............................. MANAGEMENT -- Certain
Transactions with
Management
11. Security Ownership of Certain
Beneficial Owners and
Management................................................. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
12. Description of Securities.................................. DESCRIPTION OF
SECURITIES
13. Interest of Named Experts and
Counsel.................................................... Not Applicable
-i-
<PAGE>
14. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities ................................ Not Applicable
15. Organization within last five
years...................................................... MANAGEMENT -- Certain
Transactions with
Management
16. Description of Business.................................... BUSINESS
17. Management's Discussion and
Analysis of Plan of Operation.............................. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
18. Description of Property.................................... BUSINESS -- Properties
19. Certain Relationships and
Related Transactions....................................... MANAGEMENT -- Certain
Transactions with
Management
20. Market for Common Equity and
Related Stockholder Matters................................ MARKET AND PRICE RANGE
OF COMMON STOCK;
DIVIDEND POLICY
21. Executive Compensation..................................... MANAGEMENT -- Executive
Compensation
22. Financial Statements....................................... CONSOLIDATED FINANCIAL
STATEMENTS
23. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure.................................. Not Applicable
</TABLE>
-ii-
<PAGE>
PROSPECTUS
UNITY BANCORP, INC.
365,000 UNITS
----------
Unity Bancorp, Inc. (the "Company"), a Delaware corporation and bank
holding company registered under the Bank Holding Company Act of 1956, as
amended (the "BHCA") is offering for sale (the "Offering") 365,000 Units (the
"Units") at a per Unit price of $______. Each Unit consists of one Share of
Common Stock, no par value (the "Common Stock"), and one warrant (a "Warrant")
to purchase one share of Common Stock at an exercise price of $______ for a
period of two years from the date of issuance. The Offering will commence on
________ ___, 1996 and will terminate on _________ ___, ________ (subject to
extension by the Board of Directors of the Company as provided for herein, the
"Offering Termination Date").
Prior to the date of the Offering, there has been only a limited trading
market in the Common Stock and no trading market in the Units or Warrants. On
November __, 1996, the last reported sale price of the Common Stock on the
NASDAQ Bulletin Board was $_____. The Company has received conditional approval
to have the Common Stock listed on the American Stock Exchange under the symbol
"UBI", although no assurances can be given that the Company will satisfy all of
the conditions contained in the conditional approval. If such conditions can not
be met, the Common Stock will be traded on the NASDAQ Bulletin Board. See
"SPECIAL CONSIDERATIONS AND RISK FACTORS -- ABSENCE OF A PUBLIC MARKET."
PROSPECTIVE PURCHASERS SHOULD CAREFULLY CONSIDER THE INFORMATION CONTAINED
HEREIN UNDER THE HEADING "SPECIAL CONSIDERATIONS AND RISK FACTORS."
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting Proceeds to
Price to Public Discount(1) Company (2)
--------------- ------------ -----------
Per Unit................. $_____ $ None $_______
Total(3) ................ $_____ None $_______
- ----------
(1) The Company has not engaged any underwriter in connection with the Offering.
Offers and sales of the Units will be effected by certain officers of the
Company, who will not be separately paid for such activities. No discounts or
commissions will be paid to such officers. See "The Offering - PLAN OF
DISTRIBUTION."
(2) Before deducting offering expenses payable by the Company estimated to be
$150,000.
(3) The Company has retained an option to sell up to an additional 36,500 Units,
on the same terms and conditions set forth herein, solely to cover
over-subscriptions, if any. If such option is exercised in full, the Price to
the Public and Proceeds to the Company will be $_____ and $_________
respectively.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
----------
The Units are offered, subject to prior sale, and subject to the right of
the Company to withdraw, cancel or modify such offer and to reject any order in
whole or in part. The Offering covered by this Prospectus will expire on the
Offering Termination Date, unless the Company, in its sole discretion, shall
extend the offer. It is expected that delivery of the certificates representing
the Common Stock and the Warrants purchased as part of the Units during the
Offering will be made against payment therefor on or about _____ __, 1996 at the
offices of the Company, Clinton, New Jersey.
The date of this Prospectus is ______ __, 1996.
<PAGE>
THE SECURITIES OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENTAL AGENCY.
AVAILABLE INFORMATION
Unity Bancorp, Inc. has filed with the Securities and Exchange Commission
(the "Commission") in Washington, D.C., a Registration Statement on Form SB-2
(herein, together with all amendments thereto, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Units offered hereby. This Prospectus, which constitutes a part
of the Registration Statement, does not contain all the information set forth in
the Registration Statement and the exhibits thereto and reference is made to the
Registration Statement and exhibits thereto for further information with respect
to Unity Bancorp, Inc. and the Units offered hereby. Statements herein
concerning the contents of any contract or other document are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement, together with exhibits, may be inspected without charge, and copied
at prescribed rates at the principal or regional offices of the Commission at
the addresses indicated above. Copies also may be obtained at prescribed rates
from the public reference facilities maintained by the Commission, at 450 Fifth
Street, N.W., Washington, D.C.
In connection with the Offering, the Company will become subject to the
informational requirements of Section 12(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and in accordance therewith, will file
reports and other information with the Securities and Exchange Commission (the
"Commission" or the "SEC"). Such reports and other information can be inspected
without charge and copied at prescribed rates at the public reference facilities
maintained by the SEC at Room 1024 Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, DC 20549 and at its regional offices located at Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661 and 7 World Trade
Center, 15th Floor, New York, NY 10048. Copies of such material can also be
obtained at prescribed rates from the SEC's Public Reference Section, 450 Fifth
Street, N.W., Washington, DC 20549 and its public reference facilities in
Chicago, Illinois and New York, New York.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements (including the notes thereto) appearing elsewhere in this Prospectus.
The term Company as used herein refers to Unity Bancorp, Inc. and its wholly
owned subsidiary, First Community Bank (the "Bank").
THE COMPANY
Unity Bancorp, Inc. is a one-bank holding company incorporated under the
laws of the State of Delaware to serve as a holding company for the Bank. The
Bank opened for business on September 16, 1991. The Bank is a full-service
commercial bank, providing a wide range of business and consumer financial
services through its main office and four branches located in Clinton, North
Plainfield, Flemington, Springfield, and Scotch Plains, New Jersey. The Bank's
primary trade area encompasses the Route 22/Route 78 corridor between the Bank's
Clinton, New Jersey main office and its Springfield, New Jersey branch. This
trade area includes communities in Hunterdon, Middlesex, Morris, Somerset and
Union Counties, New Jersey.
The Company is subject to the supervision and regulation of the Board of
Governors of the Federal Reserve System (the "FRB"). The Bank is a New Jersey
chartered commercial bank whose deposits are insured by the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC").
See "RECENT DEVELOPMENTS--NEW LEGISLATION." The operations of Unity Bancorp,
Inc. and the Bank are subject to the supervision and regulation of FRB, FDIC and
the New Jersey Department of Banking.
On September 13, 1996, the Company redeemed $2.0 million in its outstanding
subordinated debt in exchange for 201,000 shares of its Common Stock. This
subordinated debt was held by affiliates of the Company, including members of
the Board of Directors of the Company and the Bank and their affiliates. The
shares issued in exchange for the subordinated debt may not be transferred by
these affiliates until September, 1998, two years after consummation of the
exchange offer, when parties may begin transferring these shares pursuant to
SEC Rule 144, assuming the conditions of the Rule are satisified.
The principal executive offices of Unity Bancorp, Inc. are located at 64
Old Highway 22, Clinton, NJ 08809, and the telephone number is (908) 730-7630.
3
<PAGE>
THE OFFERING
Securities Offered............ 365,000 Units, each Unit
consisting of one share of
Common Stock and one Warrant.
Shares of Common Stock
outstanding prior
to the Offering(1) .......... 1,562,740 shares
Shares of Common Stock
outstanding after the
Offering(1) .................. 1,927,740 shares
Warrants...................... Each Warrant entitles the
holder thereof to purchase one
share of Common Stock at an
exercise price of $_____,
subject to adjustment upon the
occurrence of certain events.
The Warrants, which are
immediately exercisable, will
expire two years from their
date of issuance.
The Offering and
Plan of Distribution.......... The Company is offering
365,000 Units, each Unit
consisting of one share of
Common Stock and one Warrant
to purchase one share of
Common Stock. Units will be
offered by certain officers of
the Company to the general
public. All subscriptions for
the Units may be made by
completing the Subscription
Agreement accompanying this
Prospectus and mailing the
Subscription Agreement and the
aggregate purchase price for
the Units to the Company.
See "THE OFFERING--PLAN OF
DISTRIBUTION."
Dividends..................... The Company has paid regular
quarterly cash dividends since
the first quarter of 1995.
- --------
(1) Does not include 365,000 shares of Common Stock reserved for issuance
upon exercise of the Warrants. Assumes the Company does not exercise its right
to issue an additional 36,500 Units to fill over subscriptions.
4
<PAGE>
The current quarterly dividend is $.05 per
share. The Company has also issued a 10%
stock dividend in 1993 and 1994 and a 5%
stock dividend in 1996. The future payment of
dividends, if any, by the Company will be
determined from time to time based upon,
among other things, the Company's performance
and capital needs.
Use of Proceeds............... The proceeds of the Offering will be used to
fund the Company's continued expansion, both
through the establishment of new branches
and through increased lending and investment
activities.
Market for Securities......... The Units, the Common Stock and the Warrants
are currently not listed on any securities
exchange or on the NASDAQ National or
SmallCap Markets. The Common Stock does trade
from time to time on the NASDAQ Bulletin
Board. There is no trading market for the
Units or the Warrants. In connection with the
Offering, the Company has received
conditional approval to have
5
<PAGE>
the Common Stock listed on the American Stock
Exchange under the symbol "UBI". Among
the conditions contained in the approval is a
requirement that the Common Stock and the
Warrants sold pursuant to the Offering be
distributed to at least 100 subscribers who
are not current stockholders of the Company.
Although the Company intends to use its best
efforts to satisfy this requirement, no
assurance can be given that the Company will
be able to satisfy this condition. In the
event the Company is unable to satisfy this
condition, the Common Stock will not be
listed on the American Stock Exchange and
will, instead, be traded on the NASDAQ
Bulletin Board.
Special Considerations and
Risk Factors.................. Prospective purchasers of the Units should
consider the information discussed under the
heading "SPECIAL CONSIDERATIONS AND RISK
FACTORS."
6
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth at and for each of the
two years presented below are derived from the consolidated financial statements
of the Company, which have been audited by Arthur Andersen LLP, independent
auditors, whose report thereon is included elsewhere herein. The selected
consolidated financial information for the six month periods ended June 30, 1996
and 1995 are derived from unaudited financial statements of the Company. The
results of operations for the six months ended June 30, 1996 are unaudited and
are not necessarily indicative of the results of operations to be expected for
the twelve months ending December 31, 1996. The selected consolidated financial
information should be read in conjunction with the consolidated financial
statements of the Company, including the related notes, thereto set forth
elsewhere in this Prospectus.
Six Months Ended Years Ended
June 30, December 31,
------------------ ------------------
1996 1995 1995 1994
------ ------ ------ ------
(Dollars in thousands, except per share data)
INCOME STATEMENT DATA:
Interest income ................ $4,949 $3,461 $7,770 $4,938
Interest expense ............... 2,136 1,350 3,334 1,830
------ ------ ------ ------
Net interest income ............ 2,813 2,111 4,436 3,108
Provision for loan losses ...... 257 145 229 161
Other income ................... 1,050 625 1,385 628
Other expense .................. 2,791 1,777 3,978 2,600
------ ------ ------ ------
Income before income taxes ..... 815 814 1,614 975
Income tax expense ............. 312 313 609 219
------ ------ ------ ------
Net income ..................... $ 503 $ 501 $1,005 $ 756
====== ====== ====== ======
7
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Years Ended
June 30, December 31,
---------------------- -----------------
1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net Income(1) ................ $ 0.38 $ 0.42 $ 0.83 $ 0.67
Cash dividends(1)............. 0.09 0.11 0.19 -0-
Book value(1)................. 7.53 6.54 7.04 6.13
Weighted average shares
outstanding(1)................ 1,322,853 1,202,975 1,203,774 1,126,193
BALANCE SHEET DATA:
Total Assets ................. $138,448 $ 96,581 $121,804 $ 78,648
Total loans .................. 84,064 46,033 59,108 36,421
Investment
securities(2) ................ 34,208 31,912 36,161 30,476
Deposits ..................... 125,623 86,565 110,998 70,695
Total stockholders'
equity ....................... 10,256 7,874 8,476 7,360
PERFORMANCE RATIOS:
Return on average
assets ....................... .78% 1.17% 1.03% 1.07%
Return on average
stockholders' equity ......... 10.58% 13.27% 12.82% 11.53%
Net interest margin .......... 4.55% 5.12% 4.70% 4.52%
Dividend payout ratio ........ 23.96% 27.43% 22.81% 0%
Equity to assets ratio ....... 7.38% 8.84% 8.07% 9.26%
</TABLE>
- --------
(1) As adjusted to give effect to the Company's 5 for 4 stock split
payable October 28, 1996 to shareholders of record as of October 15, 1996.
(2) Includes securities held to maturity and securities available for sale.
8
<PAGE>
SPECIAL CONSIDERATIONS AND RISK FACTORS
A prospective purchaser should review and consider carefully the following
factors, together with the other information contained in this Prospectus, in
evaluating an investment in the Units.
DISPARITY IN PREMIUMS
Unlike most commercial banks, deposits of the Bank are insured by SAIF.
Over the past two years, insurance premium rates for SAIF insured institutions
have been substantially higher than those for BIF insured institutions. The
higher assessment was due to two factors: First, the SAIF was not capitalized to
its statutorily mandated reserve ratio of 1.25% of insured deposits, while the
BIF reached this level of reserves in mid 1995; secondly, SAIF premiums were
used, in part, to pay interest due on bonds insured by the Federal Financial
Corporation ("FICO") in the mid 1980s to fund a portion of the thrift bailout.
BIF assessments were not so used. On September 30, 1996, the Insurance Deposit
Funds Act of 1996 (the "Deposit Act") became law. See "Recent
Developments--Recent Legislation." Among the purposes of the Deposit Act is the
equalization of deposit insurance assessments between BIF and SAIF insured
institutions and separation of the FICO repayment obligation from deposit
insurance assessments. Pursuant to the Deposit Act, BIF insured institutions
will, for the first time, be required to pay a portion of the obligations owed
under the FICO bonds. However, the Deposit Act has set the rates of contribution
between SAIF and BIF institutions differently, requiring SAIF institutions to
pay 6.4 basis points on assessed deposits while BIF institutions are only
required to pay 1.3 basis points of assessed deposits. This disparity will stay
in effect until such time as the thrift and commercial bank charters are merged
and the deposit insurance funds are merged. Under the Deposit Act, this may
occur by January 1, 1999. In the interim, SAIF insured institutions, like the
Bank, will continue to pay higher FICO bond assessments than BIF insured
institutions. This disparity in assessments may place SAIF members, such as the
Bank, at a competitive disadvantage to BIF members with respect to pricing of
loans and deposits and the ability to achieve lower operating costs.
9
<PAGE>
GROWTH STRATEGY
The Company has adopted an aggressive growth strategy pursuant to which the
Company has grown through the establishment of new branches. The Company has
opened three new branches in Flemington, Springfield and Scotch Plains, New
Jersey since June 1, 1995.
Growth through de novo branching involves certain risks and costs which
might not be incurred if the Company acquired an existing institution or branch
along with its associated deposits and loans. In establishing de novo branches,
the Company is required to enter into a market which may already be served by
existing institutions and compete without the benefit of existing customer
relationships. The Company must fund the majority of a branch's start up costs
prior to the time the branch opens for business and attracts deposits. It
typically takes up to twelve months for a branch to contribute to the Company's
profitability.
CONTROL BY OFFICERS AND DIRECTORS
Upon completion of the Offering, directors and executive officers of the
Company and their affiliates will control a substantial percentage of the Common
Stock. Executive Officers and directors of the Company will own approximately
54% of the outstanding shares of the Common Stock. Because the directors and
executive officers will own a majority of the Company's outstanding Common
Stock, as a practical matter, it will be difficult to undertake any corporate
actions requiring stockholder approval, or to elect a board of directors of the
10
<PAGE>
Company, without the support of the directors, executive officers and their
affiliates.
ABSENCE OF A PUBLIC MARKET
There is currently no established public market for the Units, the Common
Stock and the Warrants. The Common Stock trades from time to time on the NASDAQ
Bulletin Board. In connection with the Offering, the Company has applied to have
the Common Stock listed on the American Stock Exchange. The Common Stock has
been conditionally approved for listing on the American Stock Exchange under the
symbol "UBI". Among the conditions contained in the American Stock Exchange's
approval is a requirement that the shares of Common Stock sold in the Offering
be distributed to at least 100 subscribers who are not existing shareholders of
the Company. Although the Company intends to use its best efforts to satisfy
this requirement, no assurance can be given that the Company will be successful
in satisfying the conditions included in the American Stock Exchange's
conditional approval for having the Common Stock listed on the American Stock
Exchange. In the event the Common Stock is not listed on the American Stock
Exchange, the Common Stock will be traded on the NASDAQ Bulletin Board. However,
the NASDAQ Bulletin Board provides a far less liquid market for trading of the
Common Stock and it may be more difficult for shareholders to sell large blocks
of the Common Stock if the Company's Common Stock is traded on the NASDAQ
Bulletin Board instead of the American Stock Exchange. Even if the Common Stock
is listed on the American Stock Exchange, no assurances can be given that an
active public trading market for the Common Stock or the Warrants will develop
or if such a market develops, that it will be sustained.
SOURCES OF DIVIDENDS ON COMMON STOCK
The Company is a legal entity separate and distinct from the Bank. The
Company has no material assets other than its ownership of the Bank. Earnings of
the Company are wholly dependent on the earnings of the Bank, as the Company has
engaged in no significant operations of its own. Accordingly, the earnings of
the Company, and its ability to pay dividends with respect to the Common Stock,
are largely dependent on the receipt by the Company of the earnings of the Bank
in the form of dividends. Any restriction on the ability of the Bank to pay
dividends to the Company could significantly and adversely affect the ability of
the Company to pay dividends with respect to the Common Stock.
The Bank's ability to pay dividends or make other capital distributions to
the Company is governed by regulations imposed
11
<PAGE>
by the FDIC and the New Jersey Department of Banking (the "Department"), the
Bank's primary regulators. See "Supervision and Regulation."
COMPETITION
The banking and financial services field in which the Company is engaged is
highly competitive and most competitors have substantially greater financial
resources than the Company does. The Company's principal market area is served
by branch offices of large commercial banks and thrift institutions. Such
institutions have substantially greater resources than the Company to expend
upon advertising and marketing, and their substantially greater capitalization
enables those competitors to make much larger loans. The Company's success
depends a great deal upon its judgment that large and mid-size financial
institutions do not adequately serve small businesses and consumers in its
principal market area and the Company's ability to compete favorably for such
customers.
In addition to existing competition, on September 29, 1994, the Riegel-Neal
Interstate Banking and Branching Efficiency Act (the "Interstate Act") was
signed into law. The Interstate Act reduces restrictions on the acquisition of
New Jersey financial institutions by out of state bank holding companies and
financial institutions, and permits the operations of acquired New Jersey
institutions to be conducted under existing charters, thereby making
acquisitions of New Jersey institutions more efficient and cost effective for
out of state bank holding companies and financial service institutions. Adoption
of the Interstate Act may make the New Jersey banking market even more
competitive than it currently is. See "Supervision and Regulation."
LENDING RISKS
The risk of non-payment (or deferred or delayed payment) of loans is
inherent in commercial banking. Such non-payment, or delayed or deferred payment
of loans to the Company, if they occur, may have a material adverse effect on
the Company's earnings and overall financial condition. Additionally, in
compliance with applicable banking laws and regulations and in light of sound
judgment, the Company maintains an allowance for loan losses created through
charges against earnings. As of June 30, 1996, the Company's allowance for loan
losses was $774,417. The Company's marketing focus on small to medium-size
businesses may result in the assumption by the Company of certain lending risks
that are different from or greater than those which would apply to loans made to
larger companies. Company management seeks to minimize the Company's credit risk
exposure through credit controls which include evaluation of potential
borrowers, collateral available, liquidity and cash flow. However, there can be
no assurance that such procedures will actually reduce loan losses.
FUTURE ISSUANCE OF SECURITIES; EXERCISE OF WARRANTS
In order to have sufficient capital to facilitate its growth strategy, the
Company may be required to raise additional capital. In the event the Company is
unable to raise such capital, it may not be able to undertake its current
expansion strategy and management will be required to reorient its long term
strategy for the Company. There can be no assurance that the Company will be
able to generate or attract additional capital in the future on favorable terms.
In addition, the issuance of additional securities to raise additional capital
may result in dilution to the then current stockholders of the Company.
The Warrants issued as part of the Units may not be exercised unless the
Company maintains an effective registration statement covering the shares of
Common Stock issuable upon exercise of the Warrants with the SEC and with
various securities administrators for the states in which the warrant holders
reside, or unless the issuance of such shares of Common Stock is exempt from
registration. Although the Company will make every reasonable effort to maintain
such registration, no assurances can be given that the Company will be
successful.
12
<PAGE>
POTENTIAL IMPACT OF CHANGES IN MONETARY POLICY AND INTEREST RATES
The operating results of the Company may be significantly affected
(favorably or unfavorably) by market rates of interest which, in turn, are
affected by prevailing economic conditions, by the fiscal and monetary policies
of the United States Government and by the policies of various regulatory
agencies. The earnings of the Company will depend primarily upon its interest
rate spread (i.e., the difference between income earned on its loans and
investments and the interest paid on its deposits). Like many financial
institutions, the Company may be subject to the risk of fluctuations in interest
rates, which, if significant, may have a material adverse effect on its
operations. See "SUPERVISION AND REGULATION".
SUPERVISION AND REGULATION
The Federal and state laws and regulations applicable to the Company and
the Bank give regulatory authorities extensive discretion in connection with
their supervisory and enforcement responsibilities, and generally have been
promulgated to protect depositors and the deposit insurance funds and not for
the purpose of protecting stockholders. These laws and regulations can
materially affect the future business of the Company and the Bank. Laws and
regulations now affecting the Company and the Bank may be changed at any time,
and the interpretation of such laws and regulations by bank regulatory
authorities is also subject to change. The Company can give no assurance that
future changes in laws and regulations or changes in their interpretation will
not adversely affect the business of the Company and the Bank. See "SUPERVISION
AND REGULATION."
POSSIBLE DILUTIVE EFFECT OF ISSUANCE OF COMMON STOCK:
The issuance of up to an additional 365,000 shares of Common Stock could
have a dilutive effect on the Company's historical earnings per share unless
management is able to effectively utilize the proceeds of the Offering to
increase the Company's earnings sufficiently to offset the number of shares of
Common Stock sold in the Offering.
DISCRETION BY MANAGEMENT OVER USE OF PROCEEDS:
Although several possible uses for the proceeds from the sale of the Units
have been identified, the actual uses and the timing of such uses of proceeds
will be at the discretion of management and the Board of Directors of the
Company. See "Use of Proceeds."
RECENT DEVELOPMENTS
RECENT LEGISLATION
On September 30, 1996, the Deposit Insurance Fund Act of 1996 became law.
The primary purpose of the Deposit Act is to recapitalize the SAIF by charging
all SAIF member institutions a one time special assessment of 65.7 basis points
of the institution's SAIF assessable deposits as of March 31, 1995. Certain
institutions, like the Bank, which were chartered as de novo SAIF insured
commercial banks are to receive a reduction in their assessment of 20%. Based
upon the Bank's March 31, 1995 SAIF assessable deposits, the after tax cost to
the Bank of the special assessment was $222,300. As a result of the
recapitalization of the SAIF, FDIC premium assessments to SAIF members, both in
the form of insurance premiums and for repayment of the FICO obligations, is
expected to be reduced from 23 basis points to 6.4 basis points for the
healthiest thrift institutions. Had this 6.4 basis point assessment rate been in
effect through the 9 months ended September 30, 1996, the Company's Federal
deposit insurance premium expense would have been reduced by $131,620. The
Deposit Act also calls for the federal banking agencies to study the various
financial institution charters and propose a single standard federal charter,
thereby doing away with the separate bank and thrift charters. If a single
charter is adopted, the BIF and SAIF will be merged on January 1, 1999. At that
time, all insured institutions will pay the same FDIC assessment. The Deposit
Act also contains a provision which prohibits deposit migration for the purposes
of evading the premium differential between BIF and SAIF members. At this time,
management is unable to predict when or if a unified Federal charter will be
adopted and when and if the BIF and the SAIF will be merged, or the effect, if
any, of these events upon the Company.
13
<PAGE>
SEPTEMBER 30, 1996 FINANCIAL RESULTS
The selected consolidated financial and other data and financial ratios of
the Company set forth below at and for the nine months ended September 30, 1996
and 1995 were derived from the unaudited consolidated financial statements. In
the opinion of management, all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of the results of unaudited
periods presented have been included. The results of operations and ratios and
other data presented for the nine months ended September 30, 1996 are not
necessarily indicative of the results of operations for the fiscal year ended
December 31, 1996.
At September 30, December, 31
1996 1995
---------------- ------------
(In Thousands)
SELECTED FINANCIAL CONDITION DATA:
Total assets $156,488 $121,804
Loans receivable, net 89,184 58,497
Securities held to maturity 21,091 19,857
Securities available for sale
(at market value) 13,939 16,304
Total deposits 143,035 110,998
Shareholders' Equity 12,332 8,476
For the Nine Months Ended
September 30,
-------------------------------
1996 1995
---------- ----------
(In Thousands)
SELECTED OPERATING DATA:
Interest income $ 7,776 $ 5,536
Interest expense 3,405 2,295
---------- ----------
Net interest income 4,371 3,241
Provision for loan losses 365 190
---------- ----------
Net interest income after
provision for loan losses 4,006 3,051
Net gain (loss) on sale of securities 32 (19)
Gain on sale of loans 1,068 654
Other non-interest income 634 398
Special SAIF Assesment 370 0
Other non-interest expense 4,358 2,792
---------- ----------
Income before income tax expense 1,012 1,292
Income tax expense 382 491
---------- ----------
Net Income $ 629 $ 800
========== ==========
SELECTED FINANCIAL RATIOS:
Per share data:
Net income after extraordinary item $ 0.47 $ 0.66
Cash dividends $ 0.11 $ 0.15
Book value $ 7.89 $ 6.79
Weighted average shares outstanding 1,347,648 1,203,509
Adjusted outstanding shares 1,562,740 1,204,560
Performance Ratios:
Return on average assets 0.67% 1.17%
Return on average stockholders' equity 8.85% 13.88%
Net interest Margin 4.46% 4.88%
Dividend payout ratio 29.51% 22.91%
Equity to assets ratio 7.88% 7.53%
14
<PAGE>
FINANCIAL CONDITION AT SEPTEMBER 30, 1996
The Company's total assets increased to $156.5 million at September 30,
1996, an increase of $34.7 million, or 28.5%, over total assets at December 31,
1995. Total loans, net increased by 52.5%, to $89.2 million from $58.5 million
at December 31, 1995. The Company's securities portfolio, including securities
held for maturity and securities available for sale, totalled $35.0 million at
September 30, 1996, a decrease of $1.1 million from total securities at December
31, 1995. The decrease in securities was the result of a decrease of $2.4
million, or 14.5%, in the Company's securities available for sale. The Company's
total deposits increased to $143.0 million at September 30, 1996, an increase of
$32.0 million, or 28.9% over total deposits of $111.0 million at December 31,
1995. Shareholder's equity increased to $12.4 million at September 30, 1996 from
$8.5 million at December 31, 1995, an increase of 45.6%, or $3.9 million. The
growth in the Company's total assets, loans receivable and deposits was the
result of the Company's expansion through new branches and its continued
penetration of its existing markets, its emphasis on customer service, its
competitive rate structures and selective marketing. The increase in the
Company's shareholders' equity was primarily attributable to the Company's
exchanges in January and September of 1996 of an aggregate of $3.5 million in
subordinated debt for shares of its common stock. The subordinated debt, held by
affiliates of the Company and its subsidiary, was exchanged for 358,276 shares
of the Company's common stock.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS
ENDED DECEMBER 30, 1996 AND 1995
The Company's interest income increased by $2.2 million, or 40.5%, to $7.8
million for the nine months ended September 30, 1996 from $5.5 million for the
comparable period of 1995. The increase resulted from an increase in the
Company's earning assets as discussed above, partially offset by a reduction in
yield as the Company's variable rate loans repriced to lower current market
rates.
Interest expense increased by $1.1 million, or 48.3%, to $3.4 million for
the nine months ended September 30, 1996 from $2.3 million for the comparable
period of 1995. This increase in interest expense was primarily attributable to
the increase in the Company's total deposits discussed above. As interest
expense increased more rapidly than interest income, the Company experienced a
reduction in its net interest margin from 4.88% for the nine months ended
September 30, 1995 to 4.46% for the nine months ended September 30, 1996.
The Company's provision for loan losses increased by $175 thousand to $365
thousand for the nine months ended September 30, 1996 from $190 thousand for the
comparable period of 1995. This increase in the provision for loan losses
reflects the increased size of the Company's total loan portfolio from September
30, 1995 to September 30, 1996.
The Company's gain on sale of loans increased by $414 thousand to $1.1
million for the nine months ended September 30, 1996 from $654 thousand for the
comparable period of 1995. This increase in the gain on sale of loans reflects
the Company's increased participation in the Small Business Administration's
guaranteed loan program as the Company has been designated a "preferred lender"
for the States of New Jersey, Delaware, New York and Pennsylvania.
The Company's other expenses increased by $1.6 million, or 56.1%, to $4.4
million for the nine months ended September 30, 1996 from $2.8 million for the
comparable period of 1995. The increase in other expenses reflects the Company's
expansion from September 30, 1995 through September 30, 1996 as the Company has
opened several new branches and added additional administrative staff to handle
its increased loan portfolio.
For the nine months ended September 30, 1996, the Company earned net income
of $629 thousand, a decrease from the $800 thousand earned for the comparable
period of 1995 of 21.3%, or $171 thousand. Income for the nine months ended
September 30, 1996 was adversely affected by the Company's payment of a one time
assessment of $370 thousand in connection with the recapitalization of the SAIF
discussed above under "--Recent Legislation." Absent this one time assessment,
the Company's net income would have increased by $52 thousand, or 6.4%, over net
income for the comparable period of 1995.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Units offered hereby
is estimated to be approximately $4,868,750 ($5,520,625 if the over-subscription
option is exercised in full by the Company), after deducting offering expenses.
The Company intends to use the proceeds of the Offering to fund the
Company's ongoing expansion. The proceeds may be used to fund additional
branches of the Bank. The Company may also use a portion of the proceeds to fund
expansion of its leading activities.
MARKET AND PRICE RANGE OF COMMON STOCK
Commencing in November, 1995, the Common Stock of the Company became listed
for trading on the NASDAQ Bulletin Board. Prior to that time, the Common Stock
was not traded on any recognized securities exchange. As of August 31, 1996,
there were 296 stockholders of record of the Common Stock. In connection with
the Offering, the Company has received conditional approval to have the Common
Stock listed for trading on the American Stock Exchange under the symbol "UBI".
Among the conditions contained in the American Stock Exchange's approval is a
requirement that the Common Stock sold pursuant to the Offering be distributed
to at least 100 subscribers who are not currently shareholders of the Company.
Although the Company intends to use its best efforts to satisfy this condition,
no assurances can be given that this condition will be satisfied. In the event
this condition is not satisfied, the Common Stock will be traded on the NASDAQ
Bulletin Board, a less liquid market than the American Stock Exchange. Even if
the conditions contained in the American Stock Exchange's conditional approval
are satisfied and the stock is listed for trading on the American Stock
Exchange, there can be no assurance that an active or liquid trading market for
the Common Stock will develop or, if developed, be maintained.
The following table sets forth the high and low bid prices of the Common
Stock, as reported on the NASDAQ Bulletin Board since November, 1995, the date
the Company first became listed on the Bulletin Board. The high and low bid
prices reflect interdealer quotations, without retail mark-up, mark-down or
commissions and do not necessarily represent actual transactions. The bid prices
and dividends paid have been revised to give retroactive effect to the Company's
5 for 4 stock split payable October 28, 1996.
Bid
---------------------------------
Cash
High Low Dividend
------ ----- --------
1995
4th Quarter $12.00 $11.20 $.04
1996
1st Quarter.............................. 13.00 11.20 .04
2nd Quarter.............................. 14.20 12.00 .05
3rd Quarter ............................. 14.00 13.40 .05
4th Quarter (through November 5, 1996)... 13.50 13.00 .05
As of August 31, 1996, options to purchase 49,687 shares of Common Stock
were outstanding, all of which were immediately exercisable. In addition, the
Company has issued 358,276 shares of stock without registration and which are
subject to two year holding periods. The holding period on 157,276 of these
shares lapses in March, 1998 and the holding period on the remaining 201,000
shares lapses in September, 1998.
16
<PAGE>
DIVIDEND POLICY
The Company began paying a cash dividend in the first quarter of 1995 and
has paid a quarterly dividend each quarter since. The Company's current dividend
is $.05 per share. Additionally, the Company issued 10% stock dividends during
1992 and 1993 and a 5% stock dividend in 1996. Finally, the Company declared a 5
for 4 stock split payable October 28, 1996 to shareholders of record as of
October 15, 1996
The future payment of cash dividends, if any, by the Company will be
determined from time to time by the Board of Directors which will consider,
among other factors, the Company's financial condition and results of
operations, investment opportunities, capital requirements and regulatory
limitations. Funds for the payment of cash dividends by the Company are derived
from dividends paid by the Bank to the Company. Accordingly, restrictions on the
Bank's ability to pay cash dividends directly affect the payment of cash
dividends by the Company. The Bank is subject to certain limitations on the
amount of cash dividends that it may pay under the Banking Act, which provides
that a bank may pay dividends only if, after payment of the dividend, the
capital stock of the bank will be unimpaired and either the bank will have a
surplus of not less than 50 percent of its capital stock or the payment of the
dividend will not reduce the bank's surplus. As of June 30, 1996, the Bank had
$3,778,102 available for the payment of dividends to the Company pursuant to
these restrictions.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 and as adjusted to give effect, after deducting offering expenses, to
the sale by the Company of 365,000 Units offered hereby. As adjusted numbers are
based upon an offering price of $13.75 per Unit.
June 30, 1996
------------------------
Actual As Adjusted
------ -----------
(Dollars in Thousands)
Stockholders' equity(1)(2):
Common Stock, no par value 2,500,000
shares authorized, 1,562,740 shares
issued and 1,927,740 shares
issued, as adjusted.............................. $11,472 $16,341
Retained earnings.................................. 880 $ 880
Net unrealized holding (losses) on
available for sale securities.................... (86) (86)
------- -------
Total stockholders' equity................ $12,266 $17,135
======= =======
- ----------
(1) The balance of Stockholders' equity at the end of June 30, 1996 has
been restated from amounts previously reported to reflect a retroactive credit
of $2,010,000. This transaction resulted from debentures called for redemption
on September 13, 1996 and exchanged for 201,000 shares of common stock.
(2) Does not include 365,000 shares of Common Stock reserved for issuance
upon exercise of Warrants.
The following tables set forth the capital ratios of the Company and
the Bank as of June 30, 1996 and as adjusted to give effect, after
deducting offering expenses, to the sale by the Company of the 365,000
Units offered hereby at a price of $13.75 per Unit, as well as the minimum
required regulatory capital for the Company and the Bank.
-17-
<PAGE>
<TABLE>
THE COMPANY
<CAPTION>
June 30, 1996
---------------------------------- Required Regulatory
Actual As Adjusted Minimum
--------- ------------ -------------------
<S> <C> <C> <C>
Risk based capital:
Tier I capital................................ 15.21% 19.04% 4.00%
Total capital................................. 14.30% 18.21% 8.00%
Leverage ratio.................................... 9.21% 12.70% 3.00-5.00%
</TABLE>
THE BANK
<TABLE>
<CAPTION>
June 30, 1996
---------------------------------- Required Regulatory
Actual As Adjusted Minimum
--------- ------------ -------------------
<S> <C> <C> <C>
Risk based capital()
Tier I capital................................ 10.40% 10.40% 4.00%
Total capital................................. 11.19% 11.19% 8.00%
Leverage ratio.................................... 7.72% 7.72% 3.00-5.00%
</TABLE>
- ---------------
Both the Company and the Bank are subject to minimum capital requirements
promulgated by the FRB, the FDIC and the New Jersey Department of Banking, their
respective primary regulators. See "Supervision and Regulation - Bank Holding
Company Regulation - Capital Adequacy Guidelines for Bank Holding Companies."
-18-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and
results of operations should be read in conjunction with the Company's financial
statements and the notes relating thereto including herein. When necessary,
reclassifications have been made to prior years' data throughout the following
discussion and analysis for purposes of comparability with 1995 data.
OVERVIEW AND STRATEGY
Since the Company commenced operations in September, 1991, the Company
has increased its asset base at a rapid pace. The Company was created through
the purchase of two existing branches from the RTC. Upon commencement of its
operations, the Company had total assets of $61.9 million, consisting primarily
of cash and cash equivalents and investment securities. At June 30, 1996, the
Company had total assets of $138.4 million, including loans of $84.1 million.
Upon commencing operations, the Company had two branches located in Annandale
and North Plainfield, New Jersey. The Company has subsequently expanded along
the Route 22/78 corridor into Flemington and eastward into Scotch Plains and
Springfield, New Jersey. In addition, the Company has relocated its main office
from Annandale to Clinton, New Jersey. Although the Company's emphasis has been
on growth, the Company became profitable in its second year of operation, and
its net income has increased to $1.0 million for the year ended December 31,
1995 and $503 thousand for the six months ended June 30, 1996. As a result of
the Company's success in continuing growth while retaining profitability, and in
order to provide stockholders of a return on their investment, the Company began
paying cash dividends in the first quarter of 1995.
RESULTS OF OPERATIONS
The Company's results of operations depend primarily on its net
interest income, which is the difference between the interest earned on its
interest-earning assets and the interest paid on funds borrowed to support those
assets, such as deposits. Net interest margin is a function of the difference
between the weighted average rate received on interest-earning assets and the
weighted average rate paid on interest-bearing liabilities, as well as the
average level of interest-earning assets as compared with that of
interest-bearing liabilities. Net income is also affected by the amount of
non-interest income and operating expenses.
-19-
<PAGE>
NET INCOME
For the six months ended June 30, 1996, net income totaled $503
thousand, remaining relatively unchanged from the $501 thousand earned in the
comparable period of 1995. Although the Company's net interest income increased
by $703 thousand, or 33.3% over the comparable period of 1995, the increase was
offset by an increase of $1.0 million, or 57.1%, in total other expenses. The
increase in the Company's net interest income resulted from an increase of $1.5
million, or 43.0%, in total interest income partially offset by a $786 thousand
increase in total interest expense. The increase in total interest income was
attributable to a $38.0 million, or 82.6%, increase in the Company's loan
portfolio. Despite the increase in the Company's loan portfolio, the Company's
average yield on its interest earning assets declined to 8.00% for the six
months ended June 30, 1996 from 8.39% for the comparable period of 1995. The
decline in the Company's average yield reflects the repricing of the Company's
adjustable rate loans to lower market rates of interest during 1996. In
addition, new loans originated by the Company during 1996 were at lower rates of
interest than those loans originated during 1995, reflecting reduced market
rates.
The Company's net income increased from 1994 to 1995 by $249 thousand,
or 32.9%, to $1.0 million for the year ended December 31, 1995 from $756
thousand for the year ended December 31, 1994. This increase was primarily
attributable to an increase in net interest income of $1.3 million, or 42.7%,
during 1995. The increase in net interest income was attributable to an increase
in interest income of $2.8 million, or 57.4%, to $7.8 million for the year ended
December 31, 1995 from $4.9 million for the year ended December 31, 1994,
primarily as a result of an increase in the Company's loan portfolio. The volume
increases in the Company's loan portfolio were primarily funded through the
maturation of lower yielding securities, thereby increasing the Company's
average yield and net margin. The Company's average yield on interest earning
assets increased to 8.24% for the year ended December 31, 1995 from 7.18% for
the year ended December 31, 1994.
Interest expense rose $786 thousand, or 58.2%, to $2.1 million for the
six months ended June 30, 1996 compared to $1.4 million for the comparable
period of 1995, and $1.5 million, or 82.2%, to $3.3 million for the year ended
December 31, 1995 from $1.8 million for the year ended December 31, 1994. The
increases in interest expense over all periods is primarily attributable to a
77.7% increase in the Company's deposits from December 31, 1994 to June 30,
1996.
The increase in net interest income during 1995 compared to 1994 was
partially offset by higher other expenses and a higher provision for loan
losses.
-20-
<PAGE>
On a per share basis, earnings were $.38 for the six months ended June
30, 1996, $.83 for the year ended December 31, 1995, and $.67 for the year
ended December 31, 1994.
COMPARATIVE AVERAGE BALANCE SHEETS
The following table reflects the components of the Company's net
interest income, setting forth for the periods presented herein, (1) average
assets, liabilities and stockholders' equity, (2) interest income earned on
interest-earning assets and interest expense paid on interest-bearing
liabilities, (3) average yields earned on interest-earning assets and average
rates paid on interest-bearing liabilities, (4) the Company's net interest
spread (i.e., the average yield on interest-earnings assets less the average
rate on interest-bearing liabilities) and (5) the Company's net yield on
interest-earning assets. Rates are computed on a taxable equivalent basis.
-21-
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED JUNE 30, -----------------------------------------------------------------
1996 1995 1994
---------------------------- ---------------------------- ----------------------------------
Average Average Average
Interest Rates Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid Balance Expense Paid
------- -------- ------- ------- -------- ------- ------- -------- --------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Taxable loans (net of unearned
income)........................... $69,719 $3,487 10.00% $44,743 $4,782 10.69% $31,295 $2,962 9.47%
Tax exempt securities............. 572 16 5.59% 93 5 5.33% 0 0 0.00%
Taxable investment securities..... 33,761 1,015 6.01% 31,778 2,074 6.53% 27,424 1,716 6.26%
Interest bearing deposits......... 13,169 258 3.92% 12,670 617 4.87% 7,848 166 2.12%
Federal funds sold................ 6,483 174 5.36% 5,012 292 5.82% 2,191 93 4.26%
Total interest earning assets..... 123,704 4,950 8.00% 94,295 7,770 8.24% 68,757 4,938 7.18%
Non-interest earning assets....... 5,686 3,328 2,415
Allowance for possible loan
losses............................ (654) (447) (349)
Total Assets............. $128,736 $97,176 $70,823
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest bearing liabilities:
NOW deposits............. $12,704 $146 2.30% $10,665 $275 2.58% $6,288 $153 2.43%
Savings deposits......... 23,147 316 2.73% 20,677 626 3.03% 23,467 647 2.76%
Money market deposits.... 6,182 97 3.13% 5,277 197 3.74% 3,595 100 2.78%
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED JUNE 30, -----------------------------------------------------------------
1996 1995 1994
---------------------------- ---------------------------- ----------------------------------
Average Average Average
Interest Rates Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid Balance Expense Paid
------- -------- ------- ------- -------- ------- ------- -------- --------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Time deposits .............. 55,418 1,518 5.48% 38,781 2,113 5.45% 23,555 930 3.95%
Subordinated debt .......... 1,265 59 9.36% 1,378 123 8.94% 0 0 0%
Total interest bearing
liabilities .............. 98,716 2,136 4.33% 76,777 3,334 4.34% 56,904 1,830 3.22%
Non-interest bearing liabilities:
Demand deposits ............ 19,991 3.60% 11,887 3.76% 7,134 2.86%
Other liabilities .......... 524 671 227
Total non-interest
bearing liabilities ...... 20,515 12,558 7,361
Shareholders' equity ....... 9,504 7,841 6,558
Total liabilities and
shareholders' equity ..... $128,736 $97,176 $70,823
Net interest differential .. $ 2,813 $4,436 $3,108
Net yield on interest-
earning assets ........... 4.55% 4.70% 4.52%
</TABLE>
-23-
<PAGE>
The following table presents by category the major factors that contributed
to the changes in net interest income for each of the years ended December 31,
1995 and 1994 and for the six months ended June 30, 1996, as compared to each
respective previous period. Amounts have been computed on a fully tax-equivalent
basis, assuming a Federal income tax rate of 34%.
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
1996 versus 1995 1995 versus 1994
------------------------------ ---------------------------
Increase (Decrease)
Due to Change in:
Average Average Average Average
Volume Rate Net Volume Rate Net
------- ------- --- ------- ------- ---
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Taxable loans (net of
unearned income) ...... $1,640 ($ 136) ($ 107) $1,273 $ 382 $ 164
Tax exempt
securities ............ 0 0 16 0 0 5
Taxable investment
securities ............ 60 (107) (6) 272 75 12
Interest bearing
deposits .............. 124 (47) (28) 102 216 133
Federal funds sold ...... 96 (8) (8) 120 34 44
Total interest
income ....... 1,920 (299) (133) 1,768 707 358
</TABLE>
-24-
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
1996 versus 1995 1995 versus 1994
----------------------------- ---------------------------
Increase (Decrease)
Due to Change in:
Average Average Average Average
Volume Rate Net Volume Rate Net
------- ------- --- ------- ------- ---
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest expense:
NOW deposits ............. 44 (11) (4) 107 9 6
Savings deposits ......... 33 (28) (3) (77) 63 ($ 8)
Money market
deposits ............... 18 (17) (3) 47 34 16
Time deposits ............ 609 80 64 601 354 229
Subordinated debt ........ 1 3 0 0 0 123
Total interest
expense ....... 705 27 54 677 460 367
Net interest
income ........ $1,216 ($326) ($187) $1,090 $246 ($ 9)
</TABLE>
-25-
<PAGE>
PROVISION FOR LOAN LOSSES
For the six months ended June 30, 1996, the Company's provision for
loan losses was $257 thousand, an increase of $112 thousand over the provision
of $145 thousand for the six month period ended June 30, 1995. For the year
ended December 31, 1995, the Company's provision for loan losses was $229
thousand, an increase of $68 thousand over the provision of $161 thousand for
the year ended December 31, 1994. The increased provisions reflect the continued
growth in the Company's loan portfolio.
OTHER INCOME
Other income, primarily consisting of gains on sales of loans and
service fees received from deposit accounts, amounted to $1.1 million for the
six months ended June 30, 1996, an increase of $426 thousand, or 68.1%, from the
comparable period of 1995. Other income for the year ended December 31, 1995
increased by $757 thousand, or 120%, to $1.4 million compared to $628 thousand
in 1994. These increases were primarily related to increased gains on sale of
loans by the Company in both the six month period ended June 30, 1996 and the
year ended December 31, 1995, as well as the Company's increasing level of
deposits. The Company is an active participant in the United States Small
Business Administration's guaranteed loan program. Pursuant to this program, the
United States Small Business Administration guarantees between 75% and 80% of
the principal balance of any approved loan. After closing a loan, the Company
sells the guaranteed portion of the loan. For the six month period ended June
30, 1996, the Company recognized $618 thousand in income from the gain on sale
of loans, an increase of $248 thousand over the $370 thousand recognized from
the six months ended June 30, 1995. For the year ended December 31, 1995, the
Company recognized income of $871 thousand from the gain on sale of loans, an
increase of $624 thousand over the $247 thousand recognized for the year ended
December 31, 1994. The increases in gains on sale of loans are attributable to
the Company's increasing penetration of the small business loan market in the
Company's trade areas.
OTHER EXPENSES
Other expenses for the six months ended June 30, 1996 amounted to $2.8
million, an increase of $1.0 million, or 57.1%, from the comparable period of
1995 when other expenses totaled $1.8 million. For the year ended December 31,
1995, other expenses increased by $1.4 million, or 53.0%, to $4.0 million
compared to $2.6 million for the year ended December 31, 1994. These increases
were primarily attributable to increased salary, occupancy and other operating
expenses. The increases in salary and occupancy expenses during the year ended
December 31, 1995 and during the six months ended June 30, 1996 reflect the
-26-
<PAGE>
Company's expansion through the establishment of new branches. Since the
beginning of 1995, the Company has opened new branches in Flemington,
Springfield and Scotch Plains, New Jersey and has relocated its main branch and
corporate headquarters from Annandale to new leased space in Clinton, New
Jersey. Increases in other operating expenses reflect increased FDIC deposit
insurance premiums on the Company's expanding deposit base, as well as increased
item processing and servicing charges.
INCOME TAX EXPENSE
The income tax provision, which includes both federal and state taxes,
for the six months ended June 30, 1996 and for the years ended December 31, 1995
and 1994 was $312 thousand, $609 thousand and $219 thousand, respectively.
Increases in income taxes were primarily attributable to increases in income
before taxes in all periods reported, as well as full utilization of the
Company's net operating loss carryforwards during the year ended December 31,
1994.
FINANCIAL CONDITION
At June 30, 1996, the Company's total assets were $138.4 million,
compared to $121.8 million at December 31, 1995 and $78.6 million at December
31, 1994. Total loans increased to $84.1 million at June 30, 1996 from $59.1
million at December 31, 1995 and $36.4 million at December 31, 1994. Total
deposits increased to $125.6 million at June 30, 1996 from $111.0 million at
December 31, 1995 and $70.7 million at December 31, 1994.
LOAN PORTFOLIO
At June 30, 1996, the Company's total loans were $84.1 million, an
increase of $25.0 million, or 42.2%, over total loans at December 31, 1995. The
Company's loan portfolio at December 31, 1995 totaled $59.1 million, an increase
of $22.7 million, or 62.3%, over total loans at December 31, 1994. These
increases in the Company's loan portfolio reflect the Company's expansion
through its new branches as well as its continued penetration of its existing
marketplace.
The Company's loan portfolio consists of commercial and industrial
loans, real estate loans and consumer loans. Commercial and industrial loans are
made for the purpose of providing working capital, financing the purchase of
equipment or inventory and for other business purposes. Real estate loans
consist of loans secured by commercial or residential property and loans for the
construction of commercial or residential property. Consumer loans are made for
the purpose of financing the purchase of consumer goods, home improvements, and
other personal needs, and are generally secured by the personal property being
purchased.
-27-
<PAGE>
The Company's loans are primarily to businesses and individuals located
in the Company's trade area. The Company has not made loans to borrowers outside
of the United States. Commercial lending activities are focused primarily on
lending to small business borrowers. The Company believes that its strategy of
customer service, competitive rate structures and selective marketing, have
enabled the Company to gain market entry to local loans. Company mergers and
lending curtailments at larger banks competing with the Company have also
contributed to the Company's efforts to attract borrowers.
The following table sets forth the classification of the Company's
loans by major category at June 30, 1996 and as of December 31, 1995 and 1994,
respectively.
-28-
<PAGE>
<TABLE>
<CAPTION>
December 31,
June 30, -------------------------------------------
1996 1995 1994
-------------------- ------------------ -------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial and
industrial............... $12,682 15.09% $ 9,125 15.44% $ 6,952 19.09%
Real estate -
non-residential
properties............... 34,116 40.58% 23,612 39.95% 15,018 41.23%
Residential
properties............... 23,053 27.42% 16,034 27.13% 9,514 26.12%
Construction.............. 8,066 9.60% 5,705 9.65% 1,293 3.55%
Lease financing........... 57 0.07% 83 0.14% 335 0.92%
Consumer.................. 6,090 7.24% 4,549 7.70% 3,309 9.09%
------- ------- ------- ------- ------- -------
Total loans........... $84,064 100.00% $59,108 100.00% $36,421 100.00%
======= ======= ======= ======= ======= =======
</TABLE>
The following table sets forth fixed and adjustable rate commercial and
construction loans as of June 30, 1996 in terms of interest rate sensitivity.
<TABLE>
<CAPTION>
Within 1 Year 1 to 5 Years After 5 years Total
------------- ------------ ------------- -----
(In Thousands)
<S> <C> <C> <C> <C>
Loans with fixed rates:
Commercial........... $ 5,216 $3,647 $ -- $ 8,863
Real estate.......... 5,720 -- -- 5,720
Loans with adjustable
rates:
Commercial............ -- 3,371 448 3,819
Real estate........... -- 2,346 -- 2,346
------ ----- ---- -------
$10,936 $9,364 $448 $20,748
======= ====== ==== =======
</TABLE>
-29-
<PAGE>
ASSET QUALITY
The Company's principal earning assets are its loans. Inherent in the
lending function is the risk of the borrower's inability to repay their loan
under its existing terms. Risk elements include non accrual loans, past due and
restructured loans, potential problem loans, loan concentrations and other real
estate.
Non-performing assets include loans that are not accruing interest
(non-accruing loans) as a result of principal or interest being in default for a
period of 90 days or more. When a loan is classified as non-accrual, interest
accruals discontinue and all past due interest is reversed and charged against
current income. Until the loan becomes current, any payments received from the
borrower are applied to outstanding principal until such time as management
determines that the financial condition of the borrower and other factors merit
recognition of such payments as interest.
The Company attempts to minimize overall credit risk through loan
diversification and its loan approval procedures. The Company's due diligence
begins at the time a borrower and the Company begin to discuss the origination
of a loan. Documentation, including a borrower's credit history, materials
establishing the value and liquidity of potential collateral, the purpose of the
loan, the source and timing of the repayment of the loan, and other factors are
analyzed before a loan is submitted for approval. Loans made are also subject to
periodic review.
The following table sets forth information concerning the Company's
non-performing assets as of the dates indicated:
Non-Performing Loans
--------------------
December 31,
------------
June 30, 1996 1995 1994
------------- ---- ----
(In Thousands)
Non-accrual loans........................ $ 166 $ 78 $ 47
Non-accrual loans to total loans......... .20% .13% .13%
Non-performing assets to total assets.... .12% .06% .06%
Allowance for possible loan losses
as a percentage of non-performing loans.. 466.52% 720.42% 808.92%
The Company's non-accrual loans increased by $88 thousand from year end
1995 to June 30, 1996. This increase was primarily attributable to three loans
being placed on non-accrual status during the first half of 1996, while the
Company's one non-accrual loan in 1995 was charged off.
-30-
<PAGE>
The interest income that would have been recorded had these loans
performed under the original contract terms was not material for the years ended
December 31, 1995 and 1994 and was $9,516 for the six months ended June 30,
1996.
At the dates indicated in the above table, there were no concentration
of loans exceeding 10% of the Company's total loans and the Company had no
foreign loans.
Loans not included in past due, nonaccrual or restructured categories, but
where known information about possible credit problems causes management to be
uncertain as to the ability of the borrowers to comply with the present loan
repayment terms over the next six months, totaled $615,800 at June 30, 1996.
ALLOWANCE FOR LOAN LOSSES
The Company attempts to maintain an allowance for loan losses at a
sufficient level to provide for potential losses in the loan portfolio. Loan
losses are charged directly to the allowance when they occur and any recovery is
credited to the allowance. Risks within the loan portfolio are analyzed on a
continuous basis by the Company's officers, by outside, independent loan review
auditors and by the Company's Audit Committee. A risk system, consisting of
multiple grading categories, is utilized as an analytical tool to assess risk
and appropriate reserves. Along with the risk system, management further
evaluates risk characteristics of the loan portfolio under current and
anticipated economic conditions and considers such factors as the financial
condition of the borrower, past and expected loss experience, and other factors
management feels deserve recognition in establishing an appropriate reserve.
These estimates are reviewed at least quarterly, and, as adjustments become
necessary, they are realized in the periods in which they become known.
Additions to the allowance are made by provisions charged to expense and the
allowance is reduced by net charge-offs (i.e. - loans judged to be uncollectible
and charged against the reserve, less any recoveries on such loans). Although
management attempts to maintain the allowance at a level deemed adequate, future
additions to the allowance may be necessary based upon changes in market
conditions. In addition, various regulatory agencies periodically review the
Company's allowance for loan losses. These agencies may require the Company to
take additional provisions based on their judgments about information available
to them at the time of their examination.
The Company's allowance for possible loan losses totaled $774 thousand,
$562 thousand and $380 thousand at June 30, 1996 and December 31, 1995 and 1994,
respectively. The increases in the allowance are due to the continued increase
in the Company's total loan portfolio.
The following is a summary of the reconciliation of the allowance for
loan losses for the six month periods ended June 30, 1996 and 1995 and for the
years ended December 31, 1995 and 1994.
-31-
<PAGE>
Six Months Ended Year Ended
June 30, December 31,
-------------- --------------
1996 1995 1995 1994
---- ---- ---- ----
(In Thousands)
Balance at Beginning of Year ........... $562 $380 $380 $302
Charge-offs:
Real estate ........................ -- 46 49 45
Installment ........................ -- 1 1 10
Commercial ......................... -- -- -- 27
Lease financing .................... 45 -- -- --
---- ---- ---- ----
Total charge offs: ..................... 45 47 50 82
Provision charged to expense ........... 257 145 229 161
Recoveries--real estate ................ -- -- 3 --
---- ---- ---- ----
Balance of allowance at end
of year .............................. $774 $478 $562 $380
==== ==== ==== ====
Ratio of net charge-offs to
average loans outstanding ............ .06% .12% .11% .26%
Balance of allowance at year -
end as a % of loans at year end ...... .92% 1.04% .95% 1.04%
The following table sets forth, for each of the Company's major lending
areas, the amount and percentage of the Company's allowance for loan losses
attributable to such category, and the percentage of total loans represented by
such category, as of the periods indicated:
-32-
<PAGE>
Allocation of the Allowance for Loan Losses by Category
December 31,
June 30, ------------------------------------
1996 1995 1994
------------------ ----------------- -----------------
% of % of % of
Amount All Loans Amount All Loans Amount All Loans
------ --------- ------ --------- ------ ---------
Balance
Applicable to:
Commercial and
industrial ....... $158,493 15.1% $ 95,919 15.4% $ 61,601 19.1%
Real Estate:
Nonresidential
properties ... 267,194 40.6% 187,856 39.9% 166,736 41.2%
Residential
properties ... 186,855 27.4% 91,659 27.1% 122,728 26.1%
Construction ....... 86,337 9.6% 121,041 9.7% 11,083 3.5%
Lease financing .... 11,947 0.1% 662 0.1% 2,870 0.9%
Consumer ........... 63,591 7.2% 64,795 7.7% 15,173 9.1%
-------- ----- -------- ----- -------- -----
Total .......... $774,417 100.0% $561,931 100.0% $380,191 100.0%
======== ===== ======== ===== ======== =====
-33-
<PAGE>
INVESTMENT SECURITIES
The Company maintains an investment portfolio to fund increased loans or
decreased deposits and other liquidity needs and to provide an additional source
of interest income. The portfolio is composed of U.S. Treasury Securities,
obligations of U.S. Government and government sponsored agencies, selected
municipal and state obligations, and corporate fixed income securities.
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," (SFAS 115),
effective January 1, 1994. Under SFAS 115, securities are classified as
securities held to maturity based on management's intent and the Company's
ability to hold them to maturity. Such securities are stated at cost, adjusted
for unamortized purchase premiums and discounts. Securities that are bought and
held principally for the purpose of selling them in the near term are classified
as trading securities, which are carried at market value. Realized gains and
losses and gains and losses from marking the portfolio to market value are
included in trading revenue. Securities not classified as securities held to
maturity or trading securities are classified as securities available for sale,
and are stated at fair value. Unrealized gains and losses on securities
available for sale are excluded from results of operations, and are reported as
a separate component of stockholders' equity, net of taxes. Securities
classified as available for sale include securities that may be sold in response
to changes in interest rates, changes in prepayment risks, the need to increase
regulatory capital or other similar requirement.
Management determines the appropriate classification of securities at the
time of purchase. At June 30, 1996, $20.4 million of the Company's investment
securities were classified as held to maturity and $13.9 million were classified
as available for sale. At June 30, 1996, no investment securities were
classified as trading securities.
At June 30, 1996, total investment securities were $34.2 million, a decrease
from total investment securities of $36.2 million at December 31, 1995, which
was an increase from total securities of $30.5 million at December 31, 1994. The
decrease in the Company's investment securities for the six months ended June
30, 1996 is attributable to the Company using the proceeds of maturing
investment securities to fund new loan demand.
The following table sets forth the carrying value of the Company's security
portfolio as of the dates indicated.
-34-
<PAGE>
A comparative summary of securities available for sale at June 30, 1996,
December 31, 1995 and 1994 is as follows:
Unrealized
Available for Sale Amortized Cost Market Value Net Gain/(loss)
- ------------------ -------------- ------------ ---------------
US Treasury ................... $ 1,954,318 $ 1,957,828 $ 3,510
US government sponsored
agencies .................... 8,682,411 8,623,895 (58,516)
State and municipal ........... 757,000 755,737 (1,263)
Other ......................... 2,519,142 2,517,337 (1,805)
----------- ----------- -----------
Total June 30, 1996 ........... $13,912,870 $13,854,797 ($ 58,073)
US Treasury ................... $ 1,963,616 $ 1,977,094 $ 13,478
US government sponsored
agencies .................... 7,504,828 7,564,063 59,234
US government agencies
and corporations ............ 706,143 719,665 13,523
State and municipal ........... 1,360,000 1,365,337 5,337
Other ......................... 4,623,887 4,678,123 54,236
----------- ----------- -----------
Total December 31, 1995 ....... $16,158,475 $16,304,283 $ 145,808
US government agencies
and corporations ............ $ 1,793,650 $ 1,757,647 ($ 36,003)
US government sponsored
agencies .................... 250,000 192,500 (57,500)
Other ......................... 5,633,171 5,249,144 (384,027)
----------- ----------- -----------
Total December 31, 1994 ....... $ 7,676,821 $ 7,199,291 ($ 477,529)
-35-
<PAGE>
A comparative summary of investment securities held to maturity at June 30,
1996, December 31, 1995 and 1994 is as follows:
Unrealized
Held to Maturity Amortized Cost Market Value Net Gain/(Loss)
- ---------------- -------------- ------------ ---------------
US government agencies and
corporations ................ $ 7,430,382 $ 7,406,719 ($ 23,663)
US government sponsored
agencies .................... 3,988,634 3,379,375 (609,259)
Other ......................... 8,934,557 8,728,993 (205,564)
----------- ----------- -----------
Total June 30, 1996 ........... $20,353,573 $19,515,087 ($ 838,486)
US government agencies and
corporations ................ 6,773,258 6,764,329 (8,930)
US government sponsored
agencies .................... 3,987,500 3,500,499 (487,000)
Other ......................... 9,095,985 8,999,487 (96,498)
----------- ----------- -----------
Total December 31, 1995 ....... $19,856,743 $19,264,315 ($ 592,428)
US Treasury ................... $ 6,379,890 $ 6,290,405 ($ 89,485)
US government sponsored
agencies .................... 9,467,892 8,359,134 (1,108,758)
Other ......................... 7,429,062 6,691,619 (737,443)
----------- ----------- -----------
Total December 31, 1994 ....... $23,276,844 $21,341,158 ($1,935,687)
-36-
<PAGE>
The following table sets forth as of June 30, 1996 and December 31,
1995 the maturity distribution of the Company's investment portfolio.
Maturity Schedule of Investment Securities
<TABLE>
<CAPTION>
June 30,1996
------------
Held to Maturity Securities Securities Available
for Sale
--------------------------- --------------------
(In Thousands)
AMORTIZED MARKET AVERAGE AMORTIZED MARKET AVERAGE
COST VALUE RATE COST VALUE RATE
------ ------ ---- ------ ------ ----
<S> <C> <C> <C> <C> <C>
US TREASURIES
UNDER 1 YEAR ...... $ -- $ -- -- $ 1,954 $ 1,958 5.94%
US TREASURIES
1-5 YEARS ......... -- -- -- -- -- --
US GOVERNMENT
AGENCIES 1-5
YEARS ............. -- -- -- -- -- --
US GOVERNMENT
AGENCIES 10+
YEARS ............. 7,430 7,407 6.17% -- -- --
US GOVERNMENT
SPONSORED
AGENCIES UNDER
1 YEAR ............ -- -- -- 5,202 5,224 6.98%
US GOVERNMENT
SPONSORED
AGENCIES 1-5
YEARS ............. 1,239 1,236 5.05% 3,480 3,400 5.49%
US GOVERNMENT
SPONSORED
AGENCIES 5-10
YEARS ............. 1,500 1,313 3.86% -- -- --
US GOVERNMENT
SPONSORED
AGENCIES OVER
10 YEARS .......... 1,250 831 3.41% -- -- --
STATE/MUNICIPAL
UNDER 1 YEAR ...... -- -- -- 757 756 5.79%
OTHER UNDER 1
YEAR .............. -- -- -- -- -- --
OTHER 1-5
YEARS ............... 669 679 6.20% 2,038 2,036 5.92%
OTHER 10+
YEARS ............... 8,266 8,050 6.20% 481 481 6.42%
TOTAL ............... $20,354 $19,515 5.79% $13,913 $13,855 6.22%
</TABLE>
-37-
<PAGE>
<TABLE>
<CAPTION>
December 31, 1995
Held to Maturity Securities Securities Available
for Sale
--------------------------- --------------------
(In Thousands)
AMORTIZED MARKET AVERAGE AMORTIZED MARKET AVERAGE
COST VALUE RATE COST VALUE RATE
------ ------ ---- ------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
US TREASURIES
UNDER 1 YEAR ...... $ -- $ -- -- $ 1,612 $ 1,621 5.93%
US TREASURIES
1-5 YEARS ......... -- -- -- 352 356 5.93%
US GOVERNMENT
AGENCIES 1-5
YEARS ............. -- -- -- 706 720 6.80%
US GOVERNMENT
AGENCIES 10+
YEARS ............. 6,773 6,764 6.70% -- --
US GOVERNMENT
SPONSORED
AGENCIES UNDER
1 YEAR ............ -- -- -- 7,712 7,772 6.70%
US GOVERNMENT
SPONSORED
AGENCIES 1-5
YEARS ............. 1,238 1,216 5.05% 499 511 7.90%
US GOVERNMENT
SPONSORED
AGENCIES 5-10
YEARS ............. 1,500 1,382 4.43% -- -- --
US GOVERNMENT
SPONSORED
AGENCIES OVER
10 YEARS .......... 1,250 903 2.74% -- -- --
STATE/MUNICIPAL
UNDER 1 YEAR ...... -- -- -- 1,360 1,365 7.21%
OTHER UNDER 1
YEAR .............. -- -- -- 1,000 1,000 5.74%
OTHER 1-5
YEARS ............... 667 667 5.86% 2,547 2,588 6.38%
OTHER 10+
YEARS ............... 8,428 8,332 6.17% 371 371 6.92%
TOTAL ............... $19,857 $19,264 5.93% $16,159 $16,304 6.61%
</TABLE>
-38-
<PAGE>
DEPOSITS
Deposits are the Company's primary source of funds. The Company
experienced a growth in deposit balances of $14.6 million, or 13.2% to $125.6
million at June 30, 1996, from $111.0 million at December 31, 1995. Deposits
increased by $40.3 million, or 57.0%, to $111.0 million at December 31, 1995
from $70.7 million at December 31, 1994. This growth was accomplished through
the Company's expansion through its new branches, its emphasis on customer
service, competitive rate structures and selective marketing. The Company
attempts to establish a comprehensive relationship with its business borrowers,
seeking deposits as well as lending relationships. This approach has helped the
Company increase its non-interest bearing deposits. From December 31, 1994, the
Company's non-interest bearing demand deposits increased from $9.2 million, or
12.9%, of total deposits to $23.3 million, or 18.5%, of total deposits, an
increase of $14.2 million, or 154%. In addition, the Company's time deposits
increased from $28.1 million to $59.1 million at June 30, 1996, an increase of
$31.0 million, or 110%. The Company has no foreign deposits, nor are there any
material concentrations of deposits.
The following table sets forth the average amounts of various types of
deposits for each of the periods indicated:
<TABLE>
<CAPTION>
(IN THOUSANDS) 6/96 12/95 12/94
-------------- ---- ----- -----
Average Balance Amount % Amount % Amount %
------ - ------ - ------ -
Deposits:
<S> <C> <C> <C> <C> <C> <C>
NOW deposits................... $12,704 10.8% $10,665 12.2% $6,288 9.8%
Savings deposits............... 23,147 19.7% 20,677 23.7% 23,467 36.6%
Money market
deposits..................... 6,182 5.3% 5,277 6.0% 3,595 5.6%
Time deposits.................. 55,418 47.2% 38,781 44.4% 23,555 36.8%
Demand deposits................ 19,991 17.0% 11,887 13.6% 7,134 11.1%
-------- ------ ------- ------ ------- ------
Total interest-bearing
liabilities.................. $117,443 100.0% $87,286 100.0% $64,039 100.0%
======== ====== ======= ====== ======= ======
</TABLE>
The Company does not actively solicit short-term deposits of $100,000
or more because of the liquidity risks posed by such deposits. The following
table summarizes the maturity distribution of certificates of deposits of
denominations of $100,000 or more as of June 30, 1996.
-39-
<PAGE>
Time Deposits ($100,000 and over)
(In Thousands)
Three months or less............................................... $4,136
Over three months through six months............................... 2,001
Over six months through twelve months.............................. 1,699
Over twelve months................................................. 711
------
Total..................................................... $8,546
Interest Rate Sensitivity Analysis
The principal objective of the Company's asset and liability management
function is to evaluate the interest-rate risk included in certain balance sheet
accounts; determine the level of risk appropriate given the Company's business
focus, operating environment, capital, and liquidity requirements; establish
prudent asset concentration guidelines; and manage the risk consistent with
Board approved guidelines. The Company seeks to reduce the vulnerability of its
operations to changes in interest rates and to manage the ratio of interest-rate
sensitive assets to interest-rate sensitive liabilities within specified
maturities or repricing dates. The Company's actions in this regard are taken
under the guidance of the Asset/Liability Committee (ALCO) of the Board of
Directors. The ALCO generally reviews the Company's liquidity, cash flow needs,
maturities of investments, deposits and borrowings and current market conditions
and interest rates.
One of the monitoring tools used by the ALCO is an analysis of the extent
to which assets and liabilities are interest rate sensitive and measures the
Company's interest rate sensitivity "gap". An asset or liability is said to be
interest rate sensitive within a specific time period if it will mature or
reprice within that time period. A gap is considered positive when the amount
of interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of interest rate
sensitive liabilities exceeds interest rate sensitive assets. Accordingly,
during a period of rising rates, a negative gap may result in the yield on the
institution's assets increasing at a slower rate than the increase in the cost
of interest-bearing liabilities. Conversely, during a period of falling
interest rates, an institution with a negative gap would experience a repricing
of its assets at a slower rate than its interest-bearing liabilities which,
consequently, may result in its net interest income growing.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at the periods indicated which are
anticipated by the Company, based upon certain assumptions, to reprice or mature
in each of the future time periods presented. Except as noted, the amount of
assets and liabilities which reprice or mature during a particular period were
determined in accordance with the earlier of the term to repricing or the
contractual terms of the asset or liability. The Company's loan prepayment
assumptions are based upon actual historic prepayment rates.
<TABLE>
<CAPTION>
Assets 0-3 MOS 3-12 MOS 1-5 YEARS 5+ YEARS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities $19,245 $25,543 $31,061 $34,208
Fed Funds\Cash Investments 11,859 12,852 12,852 12,852
Commercial Loans (Fixed) 1,033 4,341 18,753 19,329
Commercial Loans (Variable) 35,327 35,327 35,327 35,327
Home Equity Loans (Fixed) 7 27 119 200
Home Equity Loans (Variable) 5,823 5,823 5,823 5,823
Consumer Loans 111 419 897 897
SBA Loans (Variable) 10,868 10,868 10,868 10,868
Purchased Mortgages 0 4,994 4,994 7,917
Deposit Loans 3,703 3,703 3,703 3,703
- ----------------------------------------------------------------------------------------------
Total Interest Bearing Assets $87,975 $103,896 $124,396 $131,124
==============================================================================================
Liabilities 0-3 MOS 3-12 MOS 1-3 YRS 7-15 YRS
- ----------------------------------------------------------------------------------------------
Certificates Of Deposit $14,571 $45,158 $56,525 $59,084
Money Market Deposit Accounts 6,145 6,145 6,145 6,145
Savings Accounts 9,044 9,044 9,044 9,044
Now Accounts 13,953 13,953 13,953 13,953
Money Market Savings Accounts 14,115 14,115 14,115 14,115
Subordinated Debt 2,010 2,010 2,010 2,010
- ----------------------------------------------------------------------------------------------
Total Interest Bearing Liabilities $59,838 $90,425 $101,792 $104,351
==============================================================================================
Cumulative Sensitivity Gap $28,137 $13,471 $22,604 $26,773
</TABLE>
OPERATING, INVESTING AND FINANCING CASH FLOWS
As of June 30, 1996, cash and due from banks decreased $8.2 million to
$16.5 million, compared with an increase of $6.6 million during the prior year.
Net cash used in operating activities decreased $602.6 thousand primarily due to
an increase in gain on loans sold associated with the Company's SBA loan sales.
Cash used in investing activities increased to $24.1 million compared with $10.7
million used in 1995, reflecting the Company's increase in loans. Net cash
provided by financing activities totaled $16.5 million as of June 30, 1996
compared to $17.3 million provided a year earlier.
For the year ended December 31, 1995, cash and due from banks increased
$14.6 million to $24.7 million, compared with a decrease of $5 million during
the prior year. Net cash provided by operating activities decreased $433
thousand primarily due to an increase in gain on sale of loans. Cash used in
investing activities increased to $27.5 million compared with $18.3 million used
in 1994, reflecting the Company's increase in the loan and securities portfolio.
Net cash provided in financing activities totaled $41.6 million in 1995 compared
with $12.1 million provided a year earlier as the Company increased deposits
through the addition of two branches.
LIQUIDITY
The Company's liquidity is a measure of its ability to fund loans,
withdrawals or maturities of deposits and other cash outflows in a
cost-effective manner. The Company's principal sources of funds are deposits,
scheduled amortization and prepayments of loan principal, sales and maturities
of investment securities and funds provided by operations. While scheduled loan
payments and maturing investments are relatively predictable sources of funds,
deposit flows and loan prepayments are greatly influenced by general interest
rates, economic conditions and competition.
The Company's total deposits equaled $125.6 million, $111.0 million and
$70.7 million as of June 30, 1996, December 31, 1995, and December 31, 1994,
respectively. The increase in funds provided by deposit inflows during these
years has been more than sufficient to provide for the Company's lending demand.
Through the Company's investment portfolio the Company has generally
sought to obtain a safe yet slightly higher yield than would have been available
to the Company as a net seller of overnight Federal Funds while still
maintaining liquidity. Through its investment portfolio, the Company also
attempts to manage its maturity gap by seeking maturities of investments which
coincide as closely as possible with maturities of deposits. The Company's
investment portfolio also includes securities available for sale to provide
liquidity for anticipated loan demand and other liquidity needs.
Although the Company has traditionally been a net "seller" of Federal
Funds (or overnight loans to large banks), the Company does maintain lines of
credit with the Federal Home Loan Bank of New York, Summit Bank and Midlantic
Bank, NA for "purchase" of Federal Funds in the event that temporary liquidity
needs arise.
Management believes that the Company's current sources of funds provide
adequate liquidity for the current cash flow needs of the Company.
CAPITAL
A significant measure of the strength of a financial institution is its
capital base. The Company's federal regulators have classified and defined bank
capital into the
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following components: (1) Tier I capital, which includes tangible shareholders'
equity for common stock and qualifying perpetual preferred stock, and (2) Tier
II capital, which includes a portion of the allowance for possible loan losses,
certain qualifying long-term debt and preferred stock which does not qualify for
Tier I capital. Minimum capital levels for banks are regulated by risk-based
capital adequacy guidelines which require a bank to maintain certain capital as
a percent of the bank's assets and certain off-balance sheet items adjusted for
predefined credit risk factors (risk-adjusted assets.) A bank is required to
maintain, at a minimum, Tier I capital as a percentage of risk-adjusted assets
of 4.0% and combined Tier I and Tier II capital as a percentage of risk-adjusted
assets of 8.0%.
In addition to the risk-based guidelines, the Company's regulators
require that a bank which meets the regulator's highest performance and
operation standards maintain a minimum leverage ratio (Tier I capital as a
percentage of tangible assets) of 3%. For those banks with higher levels of risk
or that are experiencing or anticipating significant growth, the minimum
leverage ratio will be proportionately increased. Minimum leverage ratios for
each bank are evaluated through the ongoing regulatory examination process.
The following table summarizes the risk-based and leverage capital
ratios for the Company at June 30, 1996, as well as the required minimum
regulatory capital ratios:
CAPITAL ADEQUACY
Minimum
June 30, 1996(1) Regulatory Requirements
---------------- -----------------------
Risk-based Capital:
Tier I capital ratio.......... 15.21% 4.00%
Total capital ratio........... 14.30% 8.00%
Leverage ratio................... 9.21% 3.00-5.00%
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(1) As adjusted to reflect a retroactive credit of $2,010,000. This
transaction resulted from debentures called for redemption on September 13, 1996
and exchanged for 201,000 shares of Common Stock.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements of the Company and notes thereto, presented
elsewhere herein, have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the change
in the relative purchasing power of money over time and due to inflation. The
impact of inflation is reflected in the increased
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cost of the Company's operations. Unlike most industrial companies, nearly all
the assets and liabilities of the Company are monetary. As a result, interest
rates have a greater impact on the Company's performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1995 the Financial Accounts Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123. "Accounting for Stock-Based
Compensation" (SFAS 123). This statement establishes financial accounting and
reporting standards for stock-based employee compensation plans. SFAS 123
encourages all entities to adopt the "fair value based method" of accounting for
employee stock compensation plans. However, SFAS 123 also allows an entity to
continue to measure compensation cost under such plans using the "intrinsic
value based method." The accounting requirements of this statement are effective
for transactions entered into in fiscal years that begin after December 15,
1995. The Company does not intend to apply the fair value based method, but the
Company's financial statements in 1996 and thereafter will include the
disclosure required by SFAS 123. Such disclosures include net income and
earnings per share as if the fair value based method had been applied.
On June 28, 1996, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".
This Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings.
Under the financial-components approach, after a transfer of financial
assets, an entity recognizes all financial and servicing assets it controls and
liabilities it has incurred and derecognizes financial assets it no longer
controls and liabilities that have been extinguished. The financial-components
approach focuses on the assets and liabilities that exist after the transfer.
Many of these assets and liabilities are components of financial assets that
existed prior to the transfer. If a transfer does not meet the criteria for a
sale, the transfer is accounted for as a secured borrowing with pledge of
collateral.
It is important to note that this Statement extends the
"available-for-sale" or "trading" approach in SFAS 115, Accounting for Certain
Investments in Debt and Equity Securities, to non-security financial assets that
can contractually be prepaid or otherwise settled in such a way that the holder
of the asset would not recover substantially all of its recorded
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investment. Thus, non-security financial assets (no matter how acquired) such as
loans, other receivables, interest-only strips or residual interests in
securitization trusts (for example, tranches subordinate to other tranches, cash
reserve accounts or rights to future interest from serviced assets that exceed
contractually specified servicing fees) that are subject to prepayment risk that
could prevent recovery of substantially all of the recorded amount are to be
reported at fair value with the change in fair value accounted for depending on
the asset's classification as "available-for-sale" or "trading." The Statement
also amends SFAS 115 to prevent a security from being classified as
held-to-maturity if the security can be prepaid or otherwise settled in such a
way that the holder of the security would not recover substantially all of its
recorded investment.
This Statement requires that a liability be derecognized if and only if
either (a) the debtor pays the creditor and is relieved of its obligation for
the liability or (b) the debtor is legally released from being the primary
obligor under the liability either judicially or by the creditor. Therefore, a
liability is not considered extinguished by an in-substance defeasance.
This Statement provides implementation guidance for accounting for (1)
securitizations, (2) transfers of partial interests, (3) servicing of financial
assets, (4) securities lending transactions, (5) repurchase agreements, (6) loan
syndications and participations, (7) risk participations in banker's
acceptances, (8) factoring arrangements, (9) transfers of receivables with
recourse, (10) transfers of sales-type and direct financing lease receivables
and (11) extinguishments of liabilities.
A number of existing FASB Statements are superseded or amended by SFAS
125. SFAS 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and is to be
applied prospectively. Earlier or retroactive application is not permitted.
Also, the extension of the SFAS 115 approach to certain non-security financial
assets and the amendment to SFAS 115 is effective for financial assets held on
or acquired after January 1, 1997. Reclassifications that are necessary because
of the amendment do not call into question an entity's intent to hold other debt
securities to maturity in the future. The Company, at this time, does not
believe that SFAS 125 will have a significant impact on the consolidated
financial position or results of operations in 1997.
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BUSINESS
GENERAL
The Company is a Delaware business corporation and bank holding company
registered under the BHCA. The Company was incorporated on February 14, 1994 for
the purpose of acquiring the Bank and thereby enabling the Bank to operate
within a holding company structure. Management of the Bank believed that a
holding company would facilitate potential acquisitions of other financial
institutions and provide financial flexibility for the growth of the Bank. On
December 1, 1994, the Company acquired 100% of the outstanding shares of the
Bank. At June 30, 1996, the Company had total assets of $138.4 million, deposits
of $125.6 million, total loans of $84.1 million, and stockholder's equity of
$10.3 million.
The principal activities of the Company are owning and supervising the
Bank. The Bank is a community-oriented, full service commercial bank providing
commercial and consumer financial services to businesses and individuals in the
Company's Trade Area, described below. Management believes that the Company will
continue to gain market share in its Trade Area and will continue to meet a
similar or greater portion of the demand for credit. Management believes that
the Company meets the competition from the many existing and larger financial
institutions in its Trade Area by emphasizing personalized service, responsive
decision making and an overall commitment to excellence.
Management believes that the economic conditions in the Company's Trade
Area are conducive to the Company's continued growth. The Company's Trade Areas
are bounded by several of New Jersey's primary highways, including the Route
22/78 corridor, Route 287 and Route 202.
Management believes that the economy of the greater New York-New Jersey
market has historically benefitted from having a large number of corporate
headquarters and a concentration of financial services-related industries, and
that it also has a well educated employment base and a large number of
industrial, service and high-technology businesses. Over the past two years, New
Jersey's economy has slowly begun to recover from the effects of a prolonged
decline in the national and regional economy, layoffs in the financial services
industry and corporate relocations. Management believes that employment levels
and real estate markets in the Bank's market area have stabilized and in some
instances begun to improve. Whether such improvement will continue is dependent,
in large part, upon the general economic health of the United States and other
factors beyond the Bank's control and, therefore, cannot be estimated.
DEPOSITS
The Company offers a full range of deposit accounts including business
and personal checking accounts, interest-bearing NOW accounts, money market
accounts and certificates of
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deposit and is competitive in structuring the terms (e.g., interest rates,
minimum balances, etc.) of the deposit accounts as part of its strategy to gain
deposits as a new entrant into its Trade Area. In spite of this effort, the
Company believes that its cost of funds is comparable to the average costs
experienced by its competitors.
LOANS
The Company lends funds to individuals and businesses for personal and
commercial purposes. The Company emphasizes the origination of loans with
adjustable rates of interest tied to the Company's Prime Rate, with 72% of the
Company's portfolio consisting of adjustable rate loans and 28% consisting of
fixed rate loans. The interest rates on these adjustable rate loans are repriced
from time to time to reflect changes, up or down, in the cost of funds to the
Company. In order to be competitive with other established banking institutions
in its trade area, the Company charges rates which are generally comparable to
those charged by other lenders.
In addition, the Company has been very active in providing loans to
small businesses through the United States Small Business Administration ("SBA")
guaranteed loan program. Under the SBA program, loans are available to small
businesses which meet certain criteria. Up to 90% of the principal of a loan to
a qualified business is guaranteed by the United States Government. The Company
sells the guaranteed portion of its SBA loans into the secondary market and
thereby derives premium income. The Company's ability to offer SBA loans on an
ongoing basis is dependent upon, among other factors, appropriation of funds by
the federal government to the SBA program. The Company has been designated a
"preferred lender" for the states of New Jersey, Delaware, New York and
Pennsylvania by the SBA. This means that the Company may originate SBA
guaranteed loans without prior SBA approval, although the guaranteed portion of
this loan will be 80% for loans up to $100,000 and 75% for loans over $100,000
and up to $1,000,000.
The Company's commercial loans are generally secured by business
assets, personal guarantees of the principals of closely-held businesses and
often by the personal assets of such principals. The loans are made to small and
mid-sized businesses in the Company's Trade Area. Federal and State law and
regulations restrict how much any bank may lend to a single customer with the
restrictions stated as a percentage of the primary capital of the Company. See
"SUPERVISION AND REGULATION". The Company believes that it can attract
commercial borrowers by providing competitive rates, superior service, local
decision-making and flexibility in loan structure. The Board of Directors
believes that small and mid-sized businesses are not always of primary
importance to larger banking institutions for commercial lending purposes,
whereas such businesses represent the main portion of the commercial loan
business for the Company.
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The Company grants both secured and unsecured personal loans to finance
the purchase of automobiles, durable goods or other consumer goods. The Board of
Directors believes that the Company's competitive interest rates and superior
service (which includes, among other things, convenience, personal attention and
prompt local decision-making) are important competitive factors in attracting
personal loans from credit-worthy consumers.
The Company also makes residential and commercial real estate loans
and, on a limited basis, construction loans.
OTHER ACTIVITIES
The Company also derives income from investments in securities,
typically obligations of the United States Government and Government Agencies.
The Company also provides a variety of financial services to its customers
including wire transfers, coin and currency collections, issuing money orders,
travelers checks and U.S. Series EE bonds, accepting direct deposit of payroll
and of federal recurring payments and issuing both standby and commercial
letters of credit.
The Company, through FCB Services Co., Inc., a subsidiary of the Bank,
sells tax deferred annuities. FCB Service Co., Inc. holds a New Jersey insurance
license. FCB Service Co., Inc. earns commissions on annuities it sells.
TRADE AREA
The Primary Trade Area is defined as the neighborhoods served by the
Bank's offices. The Bank's main office, located in Clinton, in combination with
its Flemington office, serve the greater area of Hunterdon County. The Clinton
office also services the southernmost communities of Warren and Morris Counties.
The Bank's North Plainfield office serves those communities located in the
northern, eastern and central parts of Somerset County, the northernmost
communities of Middlesex County and the southernmost communities of Union
County. The Bank's Springfield and Scotch Plains offices serve the northern,
eastern and central communities of Union County, and the southwestern
communities of Essex County.
The Company has a secondary Trade Area along the Route 78/Route 22
corridor between its two Hunterdon County offices and its offices located in
Union County. In addition to the previously mentioned Interstate highways, the
Bank's Primary and Secondary Trade Areas also have access to a major network of
other roads which includes Route 287 and Route 202.
COMPETITION
The Company is located in an extremely competitive environment. The
Company's Trade Area is already serviced by major regional banks, large thrift
institutions and by a variety of credit unions. Most of the Company's
competitors have
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substantially more capital and therefore greater lending limits than the
Company. The Company's competitors generally have established positions in the
Trade Area and have greater resources than the Company with which to pay for
advertising, physical facilities, personnel and interest on deposited funds. The
Company relies upon the competitive pricing of its loans, deposits and other
services as well as its ability to provide local decision making and personal
service in order to compete with these larger institutions.
EMPLOYEES
The Company employs 59 full-time and 7 part-time employees. None of the
Company's employees are represented by any collective bargaining agreements. The
Company believes that its relations with its employees are good.
PROPERTIES
The Company's main office is located in leased space in Clinton, New
Jersey. The Company leases approximately 18,000 square feet, including space
both for the Company's administrative headquarters and for the Bank's main
branch. The Bank maintains two ATM machines, and, under its lease, has the right
to use outside parking for its customers.
The North Plainfield branch is owned by the Company. The building is
situated at the southeast corner of Somerset Street and Mountain Avenue and
consists of a two-story, 8,000 sq. ft. office building, 5,334 ft. of which is
occupied by the Company. The building contains a full-service teller line and
lobby, three drive-up teller lanes, a 24-hour ATM machine, and on-site parking
of approximately 21 spaces.
The Company's Flemington office is located in the heart of the town's
small business and retail shopping district at 110 Main Street. The full-service
office is leased from an unrelated third-party and consists of 2,670 square feet
of bank lobby including separate teller and platform areas, a 24-hour ATM
machine and a night depository. In addition to curbside parking, the Company is
entitled to the use of leased parking spaces located in downtown lots
immediately adjacent to its office.
The Company maintains its Springfield office located at 733 Mountain
Avenue. The lobby and platform areas consist of approximately 1,200 square feet
of first floor bank space. The full-service office consists of a teller line,
platform area, drive-up teller window, safe deposit boxes and night depository.
The Company leases its office located at 2222 South Avenue
in Scotch Plains, New Jersey. The Company leases approximately
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3,900 square feet and maintains a 24-hour ATM machine. In
addition, the Company has the use of onsite parking at the site.
The leases for both the Company's main office and the Scotch
Plains branch are with certain members of the Company's Board of
Directors. See "Compensation of Directors; CERTAIN TRANSACTIONS
WITH MANAGEMENT."
The Company is a member of the MAC and PLUS ATM network.
LEGAL PROCEEDINGS
The Company and the Bank are periodically parties to or otherwise involved
in legal proceedings arising in the normal course of business, such as claims to
enforce liens, claims involving the making and servicing of real property loans,
and other issues incident to the Bank's business. Management does not believe
that there is any pending or threatened proceeding against the Company or the
Bank which, if determined adversely, would have a material effect on the
business or financial position of the Company or the Bank.
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SUPERVISION AND REGULATION
GENERAL
Bank holding companies and banks are extensively regulated under both
federal and state law. These laws and regulations are intended to protect
depositors, not stockholders. To the extent that the following information
describes statutory and regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions. Any change
in the applicable law or regulation may have a material effect on the business
and prospects of the Company and the Bank. See "Special Considerations and Risk
Factors--Supervision and Regulation."
BANK HOLDING COMPANY REGULATION
General. As a bank holding company registered under the BHCA, the Company
is subject to the regulation and supervision of the FRB. The Company is required
to file with the FRB annual reports and other information regarding its business
operations and those of its subsidiaries. Under the BHCA, the Company's
activities and those of its subsidiaries are limited to banking, managing or
controlling banks, furnishing services to or performing services for its
subsidiaries or engaging in any other activity which the FRB determines to be so
closely related to banking or managing or controlling banks as to be properly
incident thereto.
The BHCA requires, among other things, the prior approval of the FRB in any
case where a bank holding company proposes to (i) acquire all or substantially
all of the assets of any other bank, (ii) acquire direct or indirect ownership
or control of more than 5% of the outstanding voting stock of any bank (unless
it owns a majority of such bank's voting shares) or (iii) merge or consolidate
with any other bank holding company. The FRB will not approve any acquisition,
merger, or consolidation that would have a substantially anti-competitive
effect, unless the anti-competitive impact of the proposed transaction is
clearly outweighed by a greater public interest in meeting the convenience and
needs of the community to be served. The FRB also considers capital adequacy and
other financial and managerial resources and future prospects of the companies
and the banks concerned, together with the convenience and needs of the
community to be served, when reviewing acquisitions or mergers.
Additionally, the BHCA prohibits a bank holding company, with certain
limited exceptions, from (i) acquiring or retaining direct or indirect ownership
or control of more than 5% of the outstanding voting stock of any company which
is not a bank or bank holding company, or (ii) engaging directly or indirectly
in activities other than those of banking, managing or controlling
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banks, or performing services for its subsidiaries; unless such non-banking
business is determined by the FRB to be so closely related to banking or
managing or controlling banks as to be properly incident thereto. In making such
determinations, the FRB is required to weigh the expected benefits to the
public, such as greater convenience, increased competition or gains in
efficiency, against the possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices.
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by law and regulatory
policy that are designed to minimize potential loss to the depositors of such
depository institutions and the FDIC insurance funds in the event the depository
institution becomes in danger of default. Under a policy of the FRB with respect
to bank holding company operations, a bank holding company is required to serve
as a source of financial strength to its subsidiary depository institutions and
to commit resources to support such institutions in circumstances where it might
not do so absent such policy. The FRB also has the authority under the BHCA to
require a bank holding company to terminate any activity or to relinquish
control of a non-bank subsidiary upon the FRB's determination that such activity
or control constitutes a serious risk to the financial soundness and stability
of any bank subsidiary of the bank holding company.
Capital Adequacy Guidelines for Bank Holding Companies. In January 1989,
the FRB adopted risk-based capital guidelines for bank holding companies. The
risk-based capital guidelines are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance sheet exposure, and to minimize
disincentives for holding liquid assets. Under these guidelines, assets and
off-balance sheet items are assigned to broad risk categories each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items.
The risk-based guidelines apply on a consolidated basis to bank holding
companies with consolidated assets of $150 million or more. For bank holding
companies with less than $150 million in consolidated assets, the guidelines
will be applied on a bank-only basis unless: (a) the parent bank holding company
is engaged in nonbank activity involving significant leverage; or (b) the parent
company has a significant amount of outstanding debt that is held by the general
public.
The minimum ratio of total capital to risk-weighted assets (including
certain off-balance sheet activities, such as standby letters of credit) is 8%.
At least 4% of the total capital is
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required to be "Tier I Capital," consisting of common stockholders' equity,
noncumulative perpetual preferred stock, and a limited amount of cumulative
perpetual preferred stock, less certain goodwill items and other intangible
assets. The remainder ("Tier II Capital") may consist of (a) the allowance for
loan losses of up to 1.25% of risk-weighted assets, (b) excess of qualifying
perpetual preferred stock, (c) hybrid capital instruments, (d) perpetual debt,
(e) mandatory convertible securities, and (f) qualifying subordinated debt and
intermediate-term preferred stock up to 50% of Tier I capital. Total capital is
the sum of Tier I and Tier II capital less reciprocal holdings of other banking
organizations' capital instruments, investments in unconsolidated subsidiaries
and any other deductions as determined by the FRB (determined on a case by case
basis or as a matter of policy after formal rule-making).
Bank holding company assets are given risk-weights of 0%, 20%, 50% and
100%. In addition, certain off-balance sheet items are given similar credit
conversion factors to convert them to asset equivalent amounts to which an
appropriate risk-weight will apply. These computations result in the total
risk-weighted assets. Most loans are assigned to the 100% risk category, except
for performing first mortgage loans fully secured by residential property which
carry a 50% risk-weighing. Most investment securities (including, primarily,
general obligation claims of states or other political subdivisions of the
United States) are assigned to the 20% category, except for municipal or state
revenue bonds, which have a 50% risk-weight, and direct obligations of the U.S.
Treasury or obligations backed by the full faith and credit of the U.S.
Government, which have a 0% risk-weight. In converting off-balance sheet items,
direct credit substitutes including general guarantees and standby letters of
credit backing financial obligations, are given a 100% risk-weighing.
Transaction related contingencies such as bid bonds, standby letters of credit
backing nonfinancial obligations, and undrawn commitments (including commercial
credit lines with an initial maturity or more than one year) have a 50%
risk-weighing. Short term commercial letters of credit have a 20% risk-weighing
and certain short-term unconditionally cancelable commitments have a 0%
risk-weighing.
In addition to the risk-based capital guidelines, the FRB has adopted a
minimum Tier I capital (leverage) ratio, under which a bank holding company must
maintain a minimum level of Tier I capital to average total consolidated assets
of at least 3% in the case of a bank holding company that has the highest
regulatory examination rating and is not contemplating significant growth or
expansion. All other bank holding companies are expected to maintain a leverage
ratio of at least 100 to 200 basis points above the stated minimum.
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BANK REGULATION
As a New Jersey-chartered commercial bank, the Bank is subject to the
regulation, supervision, and control of the New Jersey Department of Banking. As
an FDIC-insured institution, the Bank is subject to regulation, supervision and
control of the FDIC, an agency of the federal government. The regulations of the
FDIC and the New Jersey Department of Banking impact virtually all activities of
the Bank, including the minimum level of capital the Bank must maintain, the
ability of the Bank to pay dividends, the ability of the Bank to expand through
new branches or acquisitions and various other matters.
Insurance of Deposits. The Bank's deposits are insured up to a maximum of
$100,000 per depositor under the Savings Association Insurance Fund of the FDIC.
The Federal Deposit Insurance Corporation Improvements Act of 1991 ("FDICIA")
effected a major restructuring of the federal regulatory framework applicable to
depository institutions and deposit insurance. FDICIA requires the FDIC to
establish a risk-based assessment system for all insured depository
institutions. Under this legislation, the FDIC is required to establish an
insurance premium assessment system based upon: (i) the probability that the
insurance fund will incur a loss with respect to the institution; (ii) the
likely amount of the loss; and (iii) the revenue needs of the insurance fund. In
compliance with this mandate, the FDIC has developed a matrix that sets the
assessment premium for a particular institution in accordance with its capital
level and overall rating by the primary regulator. The FDIC's risk based
insurance assessment system is not expected to have a material effect upon the
operations of the Bank.
Dividend Rights. Under the New Jersey Banking Act of 1948, a bank may
declare and pay dividends only if, after payment of the dividend, the capital
stock of the bank will be unimpaired and either the bank will have a surplus of
not less than 50% of its capital stock or the payment of the dividend will not
reduce the bank's surplus.
Recent Regulatory Enactments. On September 29, 1994, the Riegel-Neal
Interstate Banking and Branching Efficiency Act (the "Interstate Act") was
enacted. The Interstate Act generally enhances the ability of bank holding
companies to conduct their banking business across state boarders. The
Interstate Act has two main provisions. The first provision generally provides
that commencing on September 29, 1995, bank holding companies may acquire banks
located in any state regardless of the provisions of state law. These
acquisitions are subject to certain restrictions, including caps on the total
percentage of deposits that a bank holding company may control both nationally
and in any single state. New Jersey law currently allows interstate acquisitions
by bank holding
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companies whose home state has "reciprocal" legislation which would allow
acquisitions by New Jersey based bank holding companies.
The second major provision of the Interstate Act permits, beginning on June
1, 1997, banks located in different states to merge and continue to operate as a
single institution in more than one state. States may, by legislation passed
before June 1, 1997, opt out of the interstate bank merger provisions of the
Interstate Act. In addition, states may elect to opt in and allow interstate
bank mergers prior to June 1, 1997.
A final provision of the Interstate Act permits banks located in one state
to establish new branches in another state without obtaining a separate bank
charter in that state, but only if the state in which the branch is located has
adopted legislation specifically allowing interstate de novo branching.
In April of 1996, the New Jersey legislature passed legislation which would
permit interstate bank mergers prior to June 1, 1997, provided that the home
state of the institution acquiring the New Jersey institution permits interstate
mergers prior to June 1, 1997. In addition, the legislation permits an
out-of-state institution to acquire an existing branch of a New Jersey based
institution, and thereby conduct business in New Jersey. The legislation does
not permit interstate de novo branching. This legislation is likely to enhance
competition in the New Jersey marketplace as bank holding companies located
outside of New Jersey become freer to acquire institutions located within the
State of New Jersey.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
POSITION WITH THE COMPANY AND DIRECTOR
NAME AGE THE BANK(1) SINCE(2)
- ---- --- ----------------------------- --------
Robert Van 53 Chairman of the Board and Chief 1990
Volkenburgh Executive Officer and Director of
the Company; Chairman of the
Board of the Bank
James Hyman 50 President, Chief Operating 1990
Officer and Director of the
Company; President and Chief
Executive Officer of the Bank
David D. 42 Vice Chairman, Corporate 1990
Dallas Secretary and Director of the
Company; Vice Chairman of the
Bank.
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(1) Each director of the Company is also a director of the Bank.
(2) Includes prior years of service on Board of Directors
of the Bank.
No director of the Company is also a director of any other company registered
pursuant to Section 12 of the Securities
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Exchange Act of 1934 or any company registered as an investment company under
the Investment Company Act of 1940.
DIRECTORS OF THE BANK WHO DO NOT SERVE AS DIRECTORS OF THE
CORPORATION
DIRECTOR
NAME AGE POSITION WITH THE BANK SINCE
---- --- ---------------------- -----
Robert H. Dallas, II 49 Director 1990
Peter P. DeTommaso 70 Director 1991
John Fallone 42 Director 1994
Walter Hazard 53 Director 1990
Charles S. Loring 53 Director 1990
John O'Brien 58 Director 1994
Peter G. Schoberl 41 Director, Executive 1996
Vice President and Senior
Lending Officer
Samuel Stothoff 63 Director 1990
Allen Tucker 69 Director 1995
Robert J. van 31 Director 1995
Volkenburgh, Jr.,
M.D.
Mr. van Volkenburgh, Jr. is the son of Robert J. Van
Volkenburgh, the Chairman of the Board of the Company.
Set forth below is certain information regarding the Directors and
Executive Officers of the Company, including their principal occupation for the
past 5 years:
Robert Van Volkenburgh is Chief Executive Officer for Total Packaging
Corporation and Best Packaging & Design Corp. which develops, manufacturers and
distributes high quality point of purchase displays.
David A. Dallas is Chief Executive Officer of Dallas Group of America, a
chemical manufacturing firm.
James Hyman is President and Chief Operating Officer of the Company and
President and Chief Executive Officer of the Bank.
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<PAGE>
Set forth below is certain information regarding the Directors of the Bank
who are not also Directors of the Company:
Robert H. Dallas II is President of Dallas Group of America, a chemical
manufacturing firm.
Peter P. DeTommaso is President of Home Owners Heaven Inc., a hardware and
lumber retail store.
John Fallone is President of Fallone Organization, a real estate
development company.
Walter Hazard is founder and President of Atrion Corporation, a computer
firm, and a Director of Atrion Communication Resources.
Charles S. Loring is the owner of the firm of Charles S.
Loring, CPA.
John O'Brien is the owner of O'Brien Funeral Home.
Peter G. Schoberl has been the Executive Vice President and Senior Lending
Officer of the Bank since 1995. Previously, he was a Senior Vice President and
the Senior Lending Officer of American Union Bank from 1990 to 1995.
Samuel Stothoff is President of Samuel Stothoff Company, a well drilling
firm.
Allen Tucker is President of Tucker Enterprises, a real estate development
firm.
Robert J. van Volkenburgh, Jr., M.D. is a physician. In addition, he is the
Chief Financial Officer of both Total Packaging Corporation and Best Packaging &
Design Corp. and the Chief Executive Officer of RJV Capital Management, LLC, a
family asset management company.
Robert J. van Volkenburgh, Jr., M.D. is the son of Robert J. Van
Volkenburgh, a Director of the Company.
PRINCIPAL OFFICERS
Set forth below is the name of and certain biographical information
regarding an additional principal officer of the Company who does not also serve
as a Director. The term of office for each officer is one year.
Thomas B. Maresca
Mr. Maresca, age 38, has been Senior Vice President of the Bank since 1994
and has been employed by the Bank since its
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inception. He has been Chief Financial Officer of the Company since its
inception.
EXECUTIVE COMPENSATION
The following table sets forth all remuneration earned in the past three
years for services performed for the Company by the Chief Executive Officer and
all other executive officers whose compensation from the Company exceeded
$100,000.
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SUMMARY COMPENSATION TABLE
CASH AND CASH EQUIVALENT FORMS
OF REMUNERATION
Name and Principal Annual Annual Other Annual
Position Year Salary Bonus Compensation(1)
-------- ---- ------ ----- ---------------
Robert Van Volkenburgh, 1995 $ 60,000 $ 0 $ 9,550
Chairman and Chief
Executive Officer 1994 32,000 0 7,650
1993 0 0 5,000
James Hyman, President 1995 $120,000 $27,900 $ 0
and Chief Operating (2)
Officer
1994 111,300 5,000 0
1993 109,788 6,000 0
- ----------
(1) Other annual compensation includes director fees, insurance premiums and the
personal use of Bank automobiles.
(2) $20,000 of the 1995 annual bonus paid to James Hyman represents the value of
3,071 shares of Common Stock issued to Mr. Hyman under the Company's Stock Bonus
Plan in February of 1995.
STOCK OPTION PLAN FOR EMPLOYEES
The Company maintains a 1994 Stock Option Plan for Employees (the "Employee
Plan"). Under the Employee Plan, 62,500 shares of Common Stock have been
reserved for issuance, subject to adjustments as set forth therein. Officers and
other key employees of the Company (including officers and employees who are
directors), the Bank and any other subsidiaries which the Company may acquire or
incorporate participate in the Employee Plan. The Option Committee administers
the Employee Plan. The Option Committee has the authority to determine the key
employees who will receive options under the Employee Plan, the terms and
conditions of options granted under the Employee Plan and the exercise price
therefor. For the fiscal year ended December 31, 1995, no options were granted
under the Employee Plan.
STOCK BONUS PLAN
The Company maintains a Stock Bonus Plan (the "Stock Bonus Plan"). Under
the Stock Bonus Plan, 21,929 shares of Common Stock have been reserved for
issuance. Officers and other key employees of the Company (including officers
and employees who are directors), the Bank and any other subsidiaries which the
Company may acquire or incorporate participate in the Stock Bonus
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Plan. The Board of Directors of the Company (or a committee appointed by the
Board) administers and supervises the Stock Bonus Plan. The Board has the
authority to determine the key employees or directors who will receive awards
under the Plan and the number of shares awarded to each recipient. In 1995, one
grant of 3,071 shares was awarded under the Stock Bonus Plan to James Hyman.
CHANGE IN CONTROL AGREEMENT
The Company has entered into a Change in Control Agreement with Peter
Schoberl, an Executive Vice President and Senior Lending Officer of the Bank.
The agreement has a four year term from January 1, 1995 through December 31,
1998. The agreement provides that upon the occurrence of a change in control (as
defined in the agreement) of the Company and in the event Mr. Schoberl is
terminated for reasons other than cause (as defined in the agreement), he will
be entitled to severance pay in amounts equal to 100%, 75%, 50% and 25% of his
base salary respectively in each of the first four years of the agreement. The
agreement further provides that Mr. Schoberl will be entitled to receive
benefits under the agreement in the event he resigns from his employment with
the Company within 18 months of a change in control and 30 days of the
occurrence of any of the following events after such change in control: (i) he
is reassigned to a position of lesser rank or status than his position at the
time of the change in control; (ii) his place of employment is relocated by more
than thirty miles from its location prior to the change in control or (iii) his
compensation or other benefits are reduced.
COMPENSATION OF DIRECTORS
Directors of the Company do not receive compensation for their service on
the Company's Board.
Directors of the Bank receive an annual retainer of up to $5,000, depending
upon their years of service on the Board. Directors who have one year of service
receive a $3,000 retainer, directors with two years of service receive a $4,000
retainer, and directors with three or more years of service receive the entire
$5,000 retainer. Each Committee Chairman also receives a $1,000 Committee
retainer. Directors also receive $300 for attendance at each Board of Directors
meeting and $150 for attendance at each Committee meeting. In addition, Mr. Van
Volkenburgh received a retainer of $8,333.33 per month for his services as
Chairman of the Board of the Bank and Mr. David Dallas received a retainer of
$4,166.66 per month for his service as Vice Chairman of the Board of the Bank.
The Corporation maintains a 1994 Stock Option Plan for Non-Employee
Directors (the "Plan") which provides for options to purchase shares of Common
Stock to be issued to non-employee
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directors of the Corporation, the Bank and any other subsidiaries which the
Corporation may acquire or incorporate in the future. Individual directors to
whom options are granted under the Plan are selected by the Option Committee of
the Board of Directors. The Option Committee has the authority to determine the
terms and conditions of options granted under the Plan and the exercise price
therefor. For the fiscal year ended December 31, 1995, no options were granted
under the Plan.
CERTAIN TRANSACTIONS WITH MANAGEMENT
The Bank has made in the past and, assuming continued satisfaction of
generally applicable credit standards, expects to continue to make loans to
directors, executive officers and their associates (i.e. corporations or
organizations for which they serve as officers or directors or in which they
have beneficial ownership interests of ten percent or more). These loans have
all been made in the ordinary course of the Bank's business on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and do not involve more than
the normal risk of collectibility or present other unfavorable features.
The Company leases both its headquarters and its Scotch Plains office from
partnerships consisting of Messrs. Van Volkenburgh, R. Dallas and D. Dallas.
Under the leases for these facilities, the partnerships are to receive annual
rental payments of $391,708. The Company believes that these rent payments
reflect market rents and that the leases reflect terms which are comparable to
those which could have been obtained in a lease with an unaffiliated third
party.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of August 31, 1996, certain information
concerning the ownership of shares of Common Stock by (i) each person who is
known by the Company to own beneficially more than five percent (5%) of the
issued and outstanding Common Stock, (ii) each director of the Company and each
director of the Bank, (iii) each named executive officer described in the
section of this Prospectus captioned "Executive Compensation", and (iv) all
directors and officers as a group.
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THE COMPANY
Name and Position Number of Shares Percent
With Company Beneficially Owned (1) of Class
------------ ---------------------- --------
David D. Dallas
Vice Chairman, Secretary 132,389 (2) 9.68%
James Hyman
President and Chief 19,963 (3) 1.46%
Operating Officer
Robert Van Volkenburgh
Chairman of the Board and
Chief Executive Officer 256,028 (4) 18.67%
- ----------
(1) Beneficially owned shares include shares over which the named person
exercises either sole or shared voting power or sole or shared investment
power. It also includes shares owned (i) by a spouse, minor children or
relatives sharing the same home, (ii) by entities owned or controlled by
the named person, and (iii) by other persons if the named person has the
right to acquire such shares within sixty (60) days by the exercise of any
right or option. Unless otherwise noted, all shares are owned of record and
beneficially by the named person.
(2) Includes 18,201 shares owned by the Dallas Group of America Employee's
Profit Sharing Plan and Trust, 22,264 shares owned by the Dallas Group of
America, Inc. and 18,201 shares held by Trenton Liberty Insurance Company,
T/A Alexander Insurance Managers. These shares are also disclosed as
beneficially owned by Robert Dallas. Also includes 15,881 shares held by
Mr. Dallas' mother in her own name, 7,525 shares held by Mr. Dallas' minor
children in their own names, and 6,250 shares issuable upon the exercise of
immediately exercisable options.
(3) Includes 4,915 shares held by Mr. Hyman's spouse, of which Mr. Hyman
disclaims beneficial ownership, 5,435 shares held in a brokerage account
for Mr. Hyman's benefit, 328 shares held jointly with Mr. Hyman's spouse
and 3,750 shares issuable upon the exercise of immediately exercisable
options.
(4) Includes 71,114 shares held by Mr. Van Volkenburgh's spouse in her own
name, 26,438 shares held by Mr. Van Volkenburgh's son in his own name,
2,381 shares owned jointly by Mr. Van Volkenburgh and his spouse, 14,014
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shares held by Total Packaging Corporation, a corporation owned by Mr. Van
Volkenburgh, and 18,750 shares held in a brokerage account for the benefit
of Mr. Van Volkenburgh. Also includes 9,375 shares issuable upon the
exercise of immediately exercisable stock options. Mr. Van Volkenburgh
disclaims beneficial ownership of the shares held by his spouse in her own
name and by his son in his name. Also includes 3,125 shares held by RJV
Capital Management LLC, a limited liability company owned by Mr. Van
Volkenburgh.
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THE BANK
Number of Shares Percent
Beneficially Owned (1) of Class
---------------------- --------
Robert H. Dallas, II 105,901(2)(7) 7.76%
Peter P. DeTommaso 115,961(3)(7) 8.50%
John Fallone 36,090(7)(9) 2.65%
Walter Hazard 46,109(4)(7) 3.38%
Charles S. Loring 72,963(5)(7) 5.35%
John O'Brien 44,164(7) 3.24%
Samuel Stothoff 50,706(6)(7) 3.72%
Peter G. Schoberl 2,288(8) 0.17%
Allen Tucker 23,043(7) 1.69%
Robert J. van 30,500(7) 2.24%
Volkenburgh, Jr., M.D.
- ----------
(1) Beneficially owned shares include shares over which the named person
exercised either sole or shared voting power or sole or shared investment
power. It also includes shares owned (i) by a spouse, minor children or
relatives sharing the same home, (ii) by entities owned or controlled by
the named person, and (iii) by other persons if the named person has the
right to acquire such shares within sixty (60) days by the exercise of any
right or option. Unless otherwise noted, all shares are owned of record and
beneficially by the named person.
(2) Includes 18,201 shares held by the Dallas Group of America Employee's
Profit Sharing Plan and Trust, 18,201 shares held by the Trenton Liberty
Insurance Company, T/A Alexander Insurance Managers, and 22,264 shares held
by the Dallas Group of America, Inc. which 58,666 shares are also disclosed
as beneficially owned by David D. Dallas, and 3,763 shares owned by Mr.
Dallas' minor child in his own name.
(3) Includes 89,251 shares owned jointly with Mr. DeTommaso's spouse, 13,138
shares owned by the Home Owners Heaven Profit Sharing Plan, and 10,416
shares owned jointly by Mr. DeTommaso and his brother.
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(4) Includes 13,245 shares held by the Atrion Corporation Pension Fund,
8,038 shares held by profit sharing funds controlled by Mr. Hazard,
5,208 shares held by Atrion Corporation and 2,604 shares held by Mr.
Hazard's spouse.
(5) Includes 6,285 shares held by Mr. Loring's spouse in her
own name, 13,715 shares owned jointly with his spouse, and
7,651 shares held by an Estate for which Mr. Loring is the
Executor. Mr. Loring disclaims beneficial ownership of the
shares held by his spouse.
(6) Includes 34,000 shares held jointly by Mr. Stothoff and his
spouse and 6,988 shares held by Mr. Stothoff's spouse in
her own name. Mr. Stothoff disclaims beneficial ownership
of the shares held by his spouse.
(7) Includes, 2,500 shares issuable upon the exercise of
immediately exercisable options.
(8) Includes 1,875 shares issuable upon the exercise of
immediately exercisable options.
(9) Includes 5,208 shares held jointly by Mr. Fallone and his
spouse.
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<PAGE>
DESCRIPTION OF THE COMPANY'S SECURITIES
UNITS
Each Unit consists of one share of Common Stock and one Warrant. Each
Warrant entitles the holder thereof to purchase one additional share of Common
Stock at a purchase price of $_____. The Common Stock and the Warrants will be
transferable separately upon the closing of the Offering.
COMMON STOCK
General. As a corporation incorporated under the laws of Delaware, the
rights of holders of the Company's stock are governed by the Delaware General
Corporation Law and the Company's Certificate of Incorporation. The Company's
Certificate of Incorporation provides for an authorized capitalization of
3,000,000 shares of capital stock, consisting of 2,500,000 shares of Common
Stock, and 500,000 shares of preferred stock. As of June 30, 1996, the Company
had 1,361,740 shares of Common Stock outstanding, and no shares of preferred
stock outstanding.
Dividend Rights. The holders of the Company's Common Stock will be
entitled to dividends, when, as, and if declared by the Company's Board of
Directors, subject to the restrictions imposed by Delaware law. The only
statutory limitation applicable to the Company is that dividends must be paid
out of surplus or, if there is no surplus, out of net profits for the fiscal
year in which the dividend is declared or out of the preceding year's net
profit. However, as a practical matter, unless the Company expands its
activities, its only source of income will be the Bank. Therefore, the dividend
restrictions applicable to the Bank described under the heading "Supervision and
Regulation" will continue to impact the Company's ability to pay dividends.
Voting Rights. Each share of the Company's common stock is entitled to one
vote per share. Cumulative voting is not permitted.
Under Delaware Law, a merger or consolidation may be approved by a majority
of the votes cast at a meeting at which a quorum is present. Also, Delaware law
permits the Board of Directors to authorize certain mergers, amend the
certificate of incorporation in certain respects and take similar actions
without a shareholder vote.
Delaware law also permits a corporation to adopt provisions in its
certificate of incorporation requiring greater than a majority vote to approve
specified actions. The Company has not adopted such provisions. Delaware law
also permits a corporation in its certificate of incorporation to classify its
directors so
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that different classes are elected at different annual meetings, and the
Company's Certificate of Incorporation does so provide for a classified Board.
See "-- Directors."
Preemptive Rights. Under Delaware law, shareholders may have preemptive
rights if these rights are provided in the certificate of incorporation. The
Certificate of Incorporation of the Company does not provide for preemptive
rights.
Appraisal Rights. Under Delaware law, dissenting shareholders of the
Company have appraisal rights (subject to the broad exception set forth in the
next sentence) upon certain mergers or consolidations. Appraisal rights are not
available in any such transaction if shares of the corporation are listed for
trading on a national securities exchange or designated as a national market
system security on the NASDAQ system or held of record by more than 2,000
holders.
Directors. Under Delaware law and the Company's Certificate of
Incorporation, the Company is to have a minimum of 3 directors and a maximum of
25, with the number of directors at any given time to be fixed by the Board of
Directors. In addition, the Company's Certificate of Incorporation provides that
the Board of Directors is to be divided into three classes, consisting of as
nearly an equal number of directors as possible, with the term of office of one
class expiring each year. The Company has three members of its Board of
Directors. See "MANAGEMENT."
WARRANTS
Each Warrant entitles the holder thereof to purchase one share of Common
Stock at a purchase price of $____ for a period of two years after the issuance
of the Warrants. Upon the closing of the Offering, the Warrants will be freely
tradeable without the Common Stock. Any Warrant not exercised on or before the
expiration date shall expire and will not thereafter be exercisable. Warrant
holders do not have the rights and privileges of holders of Common Stock.
The Company will deliver to purchasers certificates representing one
Warrant for each Unit purchased hereunder (the "Warrant Certificates"). Each
Warrant Certificate will indicate the total number of shares for which the
Warrant is exercisable. Thereafter, Warrant Certificates may be exchanged for
new certificates of different denominations, and may be exercised or transferred
by presenting them at the office of FCTC Transfer Services, L.P. (the "Warrant
Agent"). If a market for the Warrants develops, holder may sell their warrants
instead of exercising them.
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Each Warrant may be exercised by surrendering the Warrant Certificate, with
the form of election to purchase on the reverse side properly completed and
executed, together with payment of the exercise price to the Warrant Agent. The
Warrants may be exercised in whole or in part, but no fractional shares of
Common Stock will be issued upon exercise of the Warrant. If less than all of
the Warrants evidenced by the Warrant certificate are exercised, a new Warrant
Certificate will be issued for the remaining number of Warrants. The number of
shares purchasable upon exercise and the exercise price of each Warrant will be
proportionately adjusted upon the occurrence of certain events, including stock
dividends, stock splits, reclassification and reorganizations. The Warrants will
be issued and governed by a Warrant Agreement between the Company and the
Warrant Agent. The Warrant Certificate provides that the company and the Warrant
Agent may, without the consent of the Warrant holders, make changes in the
Warrant Agreement which are required by reason of any ambiguity, manifest error
or other mistake in the Warrant Agreement or Warrant Certificate, or that do not
adversely affect or change the interest of the holders of the Warrants.
TRANSFER AGENT AND WARRANT AGENT
The Company's transfer agent for the Common Stock and Warrant Agent for the
Warrants is FCTC Transfer Services, L.P. with offices at 111 Wood Avenue South,
Suite 206, Iselin, New Jersey 08830.
ANTI-TAKEOVER PROVISIONS
Under the Federal Change in Bank Control Act (the "Control Act"), a 60 day
prior written notice must be submitted to the FRB if any person, or any group
acting in concert, seeks to acquire 10% or more of any class of outstanding
voting securities of the Company, unless the FRB determines that the acquisition
will not result in a change of control of the Company. Under the Control Act,
the FRB has 60 days within which to act on such notice taking into consideration
certain factors, including the financial and managerial resources of the
acquiror, the convenience and needs of the community served by the bank holding
company and its subsidiary banks and the antitrust effects of the acquisition.
Under the BHCA, a company is generally required to obtain prior approval of the
FRB before it may obtain control of a bank holding company. Control is generally
described to mean the beneficial ownership of 25% or more of all outstanding
voting securities of a company.
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Pursuant to the Company's Certificate of Incorporation, the Board of
Directors of the Company is divided into three classes, each of which shall
contain approximately one-third of the whole number of the members of the Board.
Each class shall serve a staggered term, with approximately one-third of the
total number of directors being elected each year. The Company's Certificate of
Incorporation and Bylaws provide that the size of the Board shall be determined
by a majority of the directors. The Certificate of Incorporation and the Bylaws
provide that any vacancy occurring in the Board, including a vacancy created by
an increase in the number of directors or resulting from death, resignation,
retirement, disqualification, removal from office or other cause, shall be
filled for the remainder of the unexpired term exclusively by a majority vote of
the directors then in office. The classified Board is intended to provide for
continuity of the Board of Directors and to make it more difficult and time
consuming for a stockholder group to use its voting power to gain control of the
Board of Directors without the consent of the incumbent Board of Directors of
the Company.
Certain provisions of Delaware law are designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the Delaware General Corporate Law
("Section 203"), is intended to discourage certain takeover practices by
impeding the ability of a hostile acquiror to engage in certain transactions
with the target company.
In general, Section 203 provides that a "Person" (as defined therein) who
owns 15% or more of the outstanding voting stock of a Delaware corporation (an
"Interested Stockholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such "Person" became an Interested Stockholder. The
term "business combination" is defined broadly to cover a wide range of
corporate transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
an Interested Stockholder, the Board of Directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
Interested Stockholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Stockholder, with the number of shares outstanding
for this purpose calculated without regard to those shares owned by the
corporation's directors who are also officers and by certain employee stock
plans; (iii) any business combination with an Interested
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Stockholder that is approved by the Board of Directors and by a two-thirds vote
of the outstanding voting stock not owned by the Interested Stockholder; and
(iv) certain business combinations that are proposed after the corporation had
received other acquisition proposals and which are approved or not opposed by a
majority of certain continuing members of the Board of Directors. A corporation
may exempt itself from the requirements of the statute by adopting an amendment
to its Certificate of Incorporation or Bylaws electing not to be governed by
Section 203. At the present time, the Board of Directors does not intend to
propose any such amendment.
THE OFFERING -- PLAN OF DISTRIBUTION
The Company is hereby offering 365,000 Units, each Unit consisting of one
share of Common Stock and one Warrant to purchase one share of Common Stock at
an exercise price of $____. The Company will solicit subscriptions to purchase
the Common Stock and will sell the Common Stock subscribed for hereby to the
general public.
The Company has reserved an option, exercisable for a period of ___ days
after the effective date of the Registration statement of which this Prospectus
forms a part, to sell up to an additional 36,500 Units to fill
over-subscriptions for the Units.
The Company has not engaged any underwriters in connection with the
Offering. Certain executive officers of the Company will participate in the
Offering by distributing offering materials, responding to inquiries from
potential investors, maintaining records of subscriptions and attending
information meetings, if any.
Prior to this Offering, there has been a limited public trading market for
the Common Stock of the Company and no public trading marked for the Warrants.
As a result, the Price to Public set forth on the cover page of the Prospectus
and the terms of the Warrants have been determined by the Company based upon a
number of factors. These factors included the most recent bid price of the
Company's common stock, the future prospects of the Company, the banking
industry in general, the Company's recent financial performance and its position
in the industry, and other factors deemed to be relevant by the Company.
METHOD OF SUBSCRIPTION
A prospective investor wishing to subscribe for Units in the Offering must
do the following:
(a) execute a Subscription Agreement; and
(b) deliver a check, bank draft, or money order made payable, in United
States currency to "UNITY BANCORP, INC."
The Subscription Agreement, together with the full amount of the
aggregate subscription price must be mailed, in the return envelope provided
herewith, to: Unity Bancorp, Inc., Attention: James Hyman, 62 Old Highway 22,
Clinton, NJ 08809. In order for the Stock Subscription Agreement to be valid, it
must be received by the Company on or before ________ p.m. on _______ ___, 1996,
unless the Offering is extended.
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EXPIRATION OF THE OFFERING WILL BE AT ____ ON _______ ___, _______, UNLESS
THE COMPANY EXTENDS THE OFFERING.
THE COMPANY RESERVES THE RIGHT TO REJECT, IN WHOLE OR IN PART, IN ITS SOLE
DISCRETION, ANY SUBSCRIPTION FOR ANY REASON.
THE FULL SUBSCRIPTION PRICE FOR THE COMMON STOCK MUST BE INCLUDED WITH THE
SUBSCRIPTION AGREEMENT. THE PURCHASE PRICE MUST BE PAID IN UNITED STATES
CURRENCY BY CHECK, BANK DRAFT OR MONEY ORDER PAYABLE TO "UNITY BANCORP, INC."
FAILURE TO INCLUDE THE FULL SUBSCRIPTION PRICE WITH THE SUBSCRIPTION AGREEMENT
MAY CAUSE THE COMPANY TO REJECT THE SUBSCRIPTION IN WHOLE OR IN PART.
LEGAL MATTERS
The validity of the Units hereby will be passed upon for the Company by
McCarter & English, Newark, New Jersey.
EXPERTS
The consolidated statements of condition as of December 31, 1995 and 1994,
and the consolidated statements of income, changes in stockholders' equity and
cash flows for the years ended December 31, 1995, 1994 and 1993 included in this
Prospectus, have been included herein in reliance on the report of Arthur
Andersen LLP, independent public accountants, given on the authority of that
firm as experts in giving said reports.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY Page
----
Consolidated Statements of Condition as of
June 30, 1996 and 1995................................................ F-2
Consolidated Statements of Operations for the six months
ended June 30, 1996 and 1995.......................................... F-3
Consolidated Statements of Cash Flows for the six
months ended June 30, 1996 and 1995................................... F-4
Notes to Consolidated Financial Statements ................................ F-5
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY
Report of Independent Public Accountants................................... F-7
Consolidated Statements of Condition as of December 31, 1995
and 1994.............................................................. F-8
Consolidated Statements of Income for the years ended
December 31, 1995, 1994, and 1993..................................... F-9
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1995, 1994, and 1993................. F-10
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993...................................... F-11
Notes to Consolidated Financial Statements................................. F-12
F-1
<PAGE>
Consolidated Statements of Condition
<TABLE>
<CAPTION>
June 30 (Unaudited) 1996 1995
------------- -------------
<S> <C> <C>
Assets
Cash and due from banks ...................................................... $ 14,610,497 $ 12,332,826
Federal funds sold ........................................................... 1,925,000 4,325,000
------------- -------------
Total cash and cash equivalents .................................... 16,535,497 16,657,826
Securities
Available for sale (at market value) ................................... 13,854,797 7,348,748
Held to maturity (aggregate market value of $19,515,086 and $23,707,134) 20,353,571 24,563,239
------------- -------------
34,208,368 31,911,987
Loans (including loans held for sale of $2,863,482 and $1,963,334) ........... 84,064,412 46,032,706
Less: Unearned income ................................................. 15,168 28,432
Allowance for possible loan losses .......................... 774,417 478,792
------------- -------------
Net loans ................................................... 83,274,827 45,525,482
Premises and equipment, net .................................................. 2,408,277 944,623
Accrued interest receivable .................................................. 1,023,616 746,197
Organizational costs, net .................................................... 0 17,254
Other assets ................................................................. 997,312 777,693
------------- -------------
Total assets ....................................................... $ 138,447,897 $ 96,581,062
============= =============
Liabilities and Shareholders' Equity
Deposits
Demand
Noninterest Bearing ................................................ $ 23,283,463 $ 11,414,297
Interest bearing ................................................... 20,097,553 14,815,530
Savings ................................................................ 23,158,589 20,063,968
Time (includes deposits $100,000 and over of $8,546,364 and $3,741,341) 59,083,645 40,271,281
------------- -------------
Total deposits ..................................................... 125,623,250 86,565,076
Subordinated debt ............................................................ 2,010,000 1,510,000
Accrued interest payable ..................................................... 422,262 266,637
Accrued expenses and other liabilities ....................................... 136,138 364,905
------------- -------------
Total liabilities .................................................. 128,191,650 88,706,618
Commitments and contingencies
Shareholders' Equity
Common stock, no par value, 2,500,000 shares authorized;
1,361,740 and 1,204,560 issued and outstanding ..................... 9,462,444 7,371,889
Retained earnings ...................................................... 880,123 658,342
Net unrealized loss on available for sale securities ................... (86,320) (155,787)
------------- -------------
Total Shareholders' Equity ......................................... 10,256,247 7,874,444
------------- -------------
Total liabilities and Shareholders' Equity ......................... $ 138,447,897 $ 96,581,062
============= =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
F-2
<PAGE>
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Six Months Ended June 30 (Unaudited) 1996 1995
---------- ----------
<S> <C> <C>
Interest Income
Interest on loans ........................................ $3,486,678 $2,088,853
Interest on Securities ................................... 1,288,877 1,277,794
Interest on Federal Funds Sold ........................... 173,844 93,991
---------- ----------
Total interest income .................................... 4,949,399 3,460,638
Interest expense ........................................... 2,076,929 1,294,895
Interest on long term debt ................................. 59,211 55,164
---------- ----------
Total interest expense ..................................... 2,136,140 1,350,059
---------- ----------
Net interest income ........................................ 2,813,259 2,110,579
Provision for possible loan losses ......................... 257,288 145,405
---------- ----------
Net interest income after provision for possible loan losses 2,555,971 1,965,174
---------- ----------
Other income
Service charges on deposit accounts....................... 223,721 136,152
Gain on sale of loans .................................... 617,611 370,125
Gain on sale of securities ............................... 31,850 0
Other income ............................................. 177,022 488,589
---------- ----------
Total other income ....................................... 1,050,204 624,741
---------- ----------
Other expenses
Salaries and employee benefits ........................... 1,294,497 873,788
Occupancy expense ........................................ 328,168 94,338
Other operating expenses ................................. 1,168,597 808,230
---------- ----------
Total other expenses ..................................... 2,791,262 1,776,356
---------- ----------
Income before taxes ........................................ 814,913 813,559
Provision for income taxes ................................. 312,295 312,631
---------- ----------
Net income ................................................. $ 502,618 $ 500,928
========== ==========
Net income per share ....................................... $0.38 $0.42
========== ==========
Weighted average shares outstanding ........................ 1,322,853 1,202,975
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
F-3
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the six months ended June 30 (Unaudited) 1996 1995
------------ ------------
<S> <C> <C>
Operating activities:
Net income ....................................................... $ 502,618 $ 500,928
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Provision for possible loan losses ........................... 257,288 145,405
Depreciation and amortization ................................ 129,073 92,904
Gain on sale of premises and equipment ....................... 0 (1,033)
Gain on sale of securities ................................... (31,850) 0
Gain on sale of loans ........................................ (617,611) (370,125)
Amortization of securities premiums, net ..................... 32,128 21,229
Increase in accrued interest receivable ...................... (165,556) (93,533)
Increase in other assets ..................................... (493,091) (213,043)
Increase in accrued interest payable ......................... 30,737 133,018
Decrease in accrued expenses and other liabilities ........... (212,168) (181,527)
------------ ------------
Net cash (used in) provided by operating activities ..... (568,433) 34,223
------------ ------------
Investing activities:
Proceeds from sales of securities available for sale ............. 1,234,436 20,778
Purchases of securities held to maturity ......................... (1,006,172) (5,572,306)
Purchases of securities available for sale ....................... (3,999,921) 0
Maturities and principal payments on securities held to maturity . 508,674 4,243,031
Maturities and principal payments on securities available for sale 5,014,918 69,305
Proceeds from sale of loans ...................................... 6,814,863 4,761,908
Net increase in loans ............................................ (31,232,533) (14,048,391)
Capital Expenditures ............................................. (1,443,305) (207,521)
Proceeds from sale of premises and equipment ..................... 0 9,500
------------ ------------
Net cash used in investing activities ........................ $(24,109,040) $(10,723,696)
------------ ------------
Financing activities:
Increase in deposits ............................................. 14,625,626 15,870,029
Proceeds from issuance of subordinated debt ...................... 2,010,000 1,510,000
Proceeds from issuance of common stock, net ...................... 0 20,000
Other ............................................................ 7,917 0
Cash Dividends ................................................... (120,430) (137,418)
Net cash provided by financing activities .................... 16,523,113 17,262,611
(Decrease) increase in cash and cash equivalents ....................... (8,154,361) 6,573,137
Cash and cash equivalents at beginning of period ....................... 24,689,858 10,084,689
------------ ------------
Cash and cash equivalents at end of period ............................. $ 16,535,497 $ 16,657,826
============ ============
Supplemental disclosures:
Interest paid .................................................... $ 2,105,403 $ 1,217,041
Income taxes paid ................................................ 878,500 420,000
Subordinated debt exchanged for common stock ..................... 1,510,000 0
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
F-4
<PAGE>
Notes to Consolidated Financial Statements
1. The accompanying consolidated financial statements of Unity Bancorp Inc.
(the "Company") and its subsidiary, First Community Bank (the "Bank"),
reflect all adjustments and disclosures which are, in the opinion of
management necessary for a fair presentation of interim results. The
financial information has been prepared in accordance with the Company's
customary accounting practice and has not been audited.
Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted pursuant to
the SEC rules and regulations. These interim financial statements should
be read in conjunction with the Company's consolidated financial statements
and notes thereto for the year ended December 31, 1995, included in this
Registration Statement.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the year.
2. Securities:
Information with regard to the Company's securities portfolio at June 30,
1996 is as follows:
<TABLE>
<CAPTION>
June 1996 Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Held to maturity:
Obligations of U.S. Government agencies $ 7,430,382 $ 27,478 ($ 51,141) $ 7,406,719
U.S. Government sponsored agencies 3,988,634 0 (609,259) 3,379,375
Mortgage-backed securities 8,934,555 23,145 (228,708) 8,728,992
------------ ------------ ------------ ------------
Total held to maturity $ 20,353,571 $ 50,623 ($ 889,108) $ 19,515,086
============ ============ ============ ============
Available for sale:
U.S. Treasury securities $ 1,954,318 $ 3,538 ($ 28) $ 1,957,828
U.S. Government sponsored agencies 8,682,411 21,663 (80,179) 8,623,895
Obligations of states and political 757,000 0 (1,263) 755,737
subdivisions
Mortgage-backed securities 117,916 860 0 118,776
Corporate debt securities 2,038,226 66 (2,731) 2,035,561
FHLB stock 363,000 0 0 363,000
------------ ------------ ------------ ------------
Total available for sale $ 13,912,871 $ 26,127 ($ 84,201) $ 13,854,797
============ ============ ============ ============
</TABLE>
The amortized cost and estimated market value of securities at June 30,
1996, by contractual maturity, are shown below:
Estimated
Amortized Market
Cost Value
----------- -----------
Held to maturity:
Due after 1 year-5 years $ 1,238,634 $ 1,235,626
Due after 5 years-10 years 1,500,000 1,312,500
Due after 10 years 8,680,382 8,237,969
Mortgage-backed securities 8,934,555 8,728,992
----------- -----------
$20,353,571 $19,515,087
=========== ===========
Available for sale:
Due under 1 year $ 7,913,505 $ 7,937,415
Due after 1 year-5 years 5,518,450 5,436,400
FHLB Stock 363,000 363,000
Mortgage-backed securities 117,916 117,982
----------- -----------
$13,912,871 $13,854,797
=========== ===========
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations without call or
prepayment penalties.
Proceeds from sales of securities were $1,234,436 as of June 30, 1996,
gross gains on the sales of securities were $31,850.
Securities with carrying values aggregating $400,000 were pledged to secure
public deposits at June 30, 1996.
3. Loans:
Loans outstanding by classification as of June 30, 1996 are as follows:
June 30,
1996
-----------
Loans secured by real estate
Residential properties $23,053,437
Nonresidential properties 34,116,050
Construction loans 8,066,116
Commercial and industrial loans 12,681,968
Lease financing receivables 57,201
Loans to individuals 6,089,640
-----------
$84,064,412
===========
As of June 30, 1996, loans accounted for on a nonaccrual basis amounted to
approximately $166,000, respectively. The interest income that
would have been recorded had these loans performed under the original
contract terms was $9,500 for the six months ended June 30, 1996. At June
30, 1996, $151,000 in loans were past due greater than 90 days but still
accruing interest.
As of June 30,1996, the Bank's recorded investment in impaired loans,
defined as nonaccrual loans was $166,000 and the related valuation
allowance was $33,200. This valuation allowance is included in the
allowance for possible loan losses in the accompanying statement of
condition.
F-5
<PAGE>
As of June 30, 1996, approximately 78% of the Company's loans were secured
by real estate. As such, a substantial portion of the Company's borrowers'
ability to repay their loans is dependent on the economic environment of
the real estate industry in the Company's market area.
In the ordinary course of business, the Company may extend credit to
officers, directors or their associates. These loans are subject to the
Company's normal lending policy. An analysis of such loans, all of which
are current as to principal and interest payments, is as follows:
Balance at December 31, 1995 $ 3,953,574
New Loans 671,770
Repayments (256,107)
-----------
Balance at June 30, 1996 $ 4,369,237
===========
4. Allowance for Possible Loan Losses:
The allowance for possible loan losses is based on estimates and ultimate
losses may vary from current estimates. These estimates are reviewed
periodically and, as adjustments become known, they are reflected in
operations in the periods in which they become known.
An analysis of the change in the allowance for possible loan losses for the
six months ended June 30, 1996 is as follows:
June 30,
1996
---------
Balance at beginning of year $ 561,931
Provision charged to expense 257,288
Loans charged-off (44,802)
Recoveries on loans previously charged off 0
---------
Balance at end of period $ 774,417
=========
5. Subordinated Debt:
June 30,
1996
----------
8.25% Subordinated Debt due April 1, 1999 $2,010,000
----------
Total $2,010,000
==========
The Company issued subordinated debentures totaling $2,010,000 on
April 1, 1996. The debentures bear interest at 8.25%, payable quarterly
and mature on April 1, 1999. The debentures are callable at the option of
the Company and, on September 13, 1996, the debentures were called for
redemption at par plus accrued interest. As a result of this call, 201,000
shares of common stock were issued.
6. Premises and Equipment
The detail of premises and equipment as of June 30, 1996 is as follows:
June 30,
1996
-----------
Land and building $ 631,966
Furniture, fixtures and equipment 1,216,064
Leasehold improvements 1,063,544
-----------
2,911,575
Less-Accumulated depreciation and
amortization (503,298)
-----------
$ 2,408,277
===========
Additions to premises and equipment for the six months ended June 30, 1996
totaled $1,443,000 which was primarily attributable to the relocation of
the Bank's main office and the consolidation of the Company's
administrative headquarters to a 18,000 square feet leased facility located
in Clinton, NJ.
F-6
<PAGE>
Unity Bancorp. Inc. and Subsidiary
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ARTHUR ANDERSEN LLP
To the Shareholders and Board of Directors of
Unity Bancorp, Inc.:
We have audited the accompanying consolidated statements of condition of Unity
Bancorp, Inc. and subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Unity Bancorp, Inc. and
subsidiary as of December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, effective
January 1, 1993 the Company changed its method of accounting for income taxes
and effective January 1, 1994 changed its method of accounting for securities.
/s/ ARTHUR ANDERSEN LLP
Roseland, New Jersey
September 26, 1996
F-7
<PAGE>
Unity Bancorp, Inc. and Subsidiary
Consolidated Statements of Condition
<TABLE>
<CAPTION>
December 31 1995 1994
------------ ------------
<S> <C> <C>
Assets
Cash and due from banks .............................................................. $ 17,064,858 $ 7,684,689
Federal funds sold ................................................................... 7,625,000 2,400,000
------------ ------------
Total cash and cash equivalents (Note 2 and 12) ................................ 24,689,858 10,084,689
Securities (Notes 2, 3 and 12)
Available for sale (at market value) ............................................... 16,304,282 7,199,291
Held to maturity (aggregate market value of $19,264,315 and $21,341,158
in 1995 and 1994, respectively) .................................................. 19,856,743 23,276,844
------------ ------------
Total securities ............................................................... 36,161,025 30,476,135
Loans (including loans held for sale of $3,515,561 and $890,349
in 1995 and 1994, respectively) (Notes 2, 4, 5 and 12) ............................. 59,108,042 36,420,687
Less: Unearned income ............................................................ 49,278 26,217
Less: Allowance for possible loan losses ......................................... 561,931 380,191
------------ ------------
Net loans ...................................................................... 58,496,833 36,014,279
Premises and equipment, net (Notes 2 and 6) .......................................... 1,094,043 814,223
Accrued interest receivable .......................................................... 858,060 652,664
Other assets ......................................................................... 504,221 606,154
------------ ------------
Total Assets ................................................................... $121,804,040 $ 78,648,144
============ ============
Liabilities and Shareholders' Equity
Deposits (Note 12)
Demand
Noninterest bearing .............................................................. $ 18,662,191 $ 9,155,302
Interest bearing ................................................................. 19,345,467 11,728,480
Savings ............................................................................ 22,202,038 21,688,665
Time (includes deposits $100,000 and over of $6,706,000 and $2,517,000
in 1995 and 1994, respectively) .................................................. 50,787,928 28,122,600
------------ ------------
Total deposits ................................................................. 110,997,624 70,695,047
Subordinated debt (Notes 7 and 12) ................................................... 1,510,000 --
Accrued interest payable ............................................................. 391,525 133,619
Accrued expenses and other liabilities ............................................... 428,482 459,286
------------ ------------
Total Liabilities .............................................................. 113,327,631 71,287,952
------------ ------------
Commitments and contingencies (Note 10)
Shareholders' equity (Notes 1, 8 and 11)
Common stock, no par value, 2,500,000 shares authorized; 1,147,200 and
1,144,129 shares issued and outstanding in 1995 and 1994, respectively ........... 7,371,889 7,351,889
Retained earnings .................................................................. 1,070,573 294,832
Unrealized holding gain (loss) on securities available for sale, net of income taxes 33,947 (286,529)
------------ ------------
Total Shareholders' Equity ..................................................... 8,476,409 7,360,192
------------ ------------
Total Liabilities and Shareholders' Equity ..................................... $121,804,040 $ 78,648,144
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
F-8
<PAGE>
Unity Bancorp, Inc. and Subsidiary
Consolidated Statements of Income
<TABLE>
<CAPTION>
For the years ended December 31 1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Interest Income
Interest on loans (Note 2) ................... $ 4,781,664 $ 2,962,336 $ 1,749,899
Interest on securities ....................... 2,696,182 1,881,830 1,704,136
Interest on Federal funds sold ............... 291,638 93,402 34,049
----------- ----------- -----------
Total interest income .......................... 7,769,484 4,937,568 3,488,084
Interest expense ............................... 3,333,866 1,829,989 1,609,501
----------- ----------- -----------
Net interest income ............................ 4,435,618 3,107,579 1,878,583
Provision for possible loan losses (Note 2) .... 228,560 160,563 183,288
----------- ----------- -----------
Net interest income after provision for
possible loan losses ......................... 4,207,058 2,947,016 1,695,295
----------- ----------- -----------
Other income
Service charges on deposits .................. 294,899 240,329 167,420
Net gain (loss) on sale of securities (Note 3) (18,999) -- 260,557
Gain on sale of loans (Note 2) ............... 871,185 247,236 301,173
Other income ................................. 238,093 140,851 67,658
----------- ----------- -----------
Total other income ........................... 1,385,178 628,416 796,808
----------- ----------- -----------
Other Expenses
Salaries and employee benefits ............... 1,974,038 1,193,369 936,334
Occupancy expense ............................ 237,502 141,995 119,202
Other operating expenses ..................... 1,766,730 1,265,111 922,496
----------- ----------- -----------
Total other expenses ......................... 3,978,270 2,600,475 1,978,032
----------- ----------- -----------
Income before provision for income taxes ..... 1,613,966 974,957 514,071
Provision for income taxes (Notes 2 and 9 ..... 609,031 219,007 7,500
----------- ----------- -----------
Net Income ..................................... $ 1,004,935 $ 755,950 $ 506,571
=========== =========== ===========
Net income per share (Note 2) .................. $ .83 $ .67 $ .62
=========== =========== ===========
Weighted average shares outstanding (Note 2) ... 1,203,774 1,126,193 812,948
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-9
<PAGE>
Unity Bancorp, Inc. and Subsidiary
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
For the years ended December 31 Unrealized
Holding
Gain (Loss)
Additional Retained on Securities Total
Common Paid-in Earnings Available Shareholders'
Stock Capital (Deficit) for Sale Equity
----------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 .............. $ 2,342,000 $ 2,307,000 $ (967,689) $ -- $ 3,681,311
Stock dividend - 10% .................. 234,200 (234,200) -- -- --
Issuance of common stock,
net of offering costs ............... 556,115 288,669 -- -- 844,784
Net income - 1993 ..................... -- -- 506,571 -- 506,571
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1993 .............. 3,132,315 2,361,469 (461,118) $ -- 5,032,666
Stock dividend - 10% .................. 360,975 (360,975) -- -- --
Issuance of common stock,
net of offering costs ............... 1,083,225 774,880 -- -- 1,858,105
Net income - 1994 ..................... -- -- 755,950 -- 755,950
Unrealized loss on securities available
for sale, net of income tax ......... -- -- -- (286,529) (286,529)
Exchange of bank common stock for
holding company common stock
(Notes 1 and 8) ..................... 2,775,374 (2,775,374) -- -- --
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1994 .............. 7,351,889 -- 294,832 (286,529) 7,360,192
Cash dividend - $.19 per share ........ -- -- (229,194) -- (229,194)
Issuance of common stock .............. 20,000 -- -- -- 20,000
Net income - 1995 ..................... -- -- 1,004,935 -- 1,004,935
Unrealized gain on securities available
for sale, net of income tax ......... -- -- -- 320,476 320,476
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 .............. $ 7,371,889 $ -- $ 1,070,573 $ 33,947 $ 8,476,409
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-10
<PAGE>
Unity Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the years ended December 31 1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net income ....................................................... $ 1,004,935 $ 755,950 $ 506,571
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for possible loan losses ........................... 228,560 160,563 183,288
Depreciation and amortization ................................ 209,278 155,504 124,575
(Gain) loss on sale of premises and equipment ................ (1,033) 4,027 --
Net loss (gain) on sale of securities ........................ 18,999 -- (260,557)
Gain on sale of loans ........................................ (871,185) (247,236) (301,173)
Amortization of securities premiums, net ..................... 47,919 29,649 127,780
Increase in accrued interest receivable ...................... (205,396) (241,016) (98,557)
Increase in other assets ..................................... (159,268) (123,141) (19,302)
Increase in accrued interest payable ......................... 257,906 58,374 31,261
(Decrease) increase in accrued expenses and other liabilities (30,804) 380,439 (7,972)
------------ ------------ ------------
Net cash provided by operating activities .................. 499,911 933,113 285,914
------------ ------------ ------------
Investing activities:
Proceeds from sales of securities available for sale ............. 501,779 -- 12,309,559
Purchases of securities held to maturity ......................... (14,081,604) (10,057,477) (22,810,836)
Purchases of securities available for sale ....................... (237,700) (2,490,000) --
Maturities and principal payments on securities held to maturity . 8,333,727 5,047,612 16,825,661
Maturities and principal payments on securities available for sale 266,097 312,999 --
Proceeds from sale of loans ...................................... 10,853,327 3,222,107 3,197,276
Net increase in loans ............................................ (32,693,256) (14,276,824) (14,726,017)
Capital expenditures ............................................. (449,995) (66,066) (103,280)
Proceeds from sale of premises and equipment ..................... 9,500 20,000 --
------------ ------------ ------------
Net cash used in investing activities ...................... (27,498,125) (18,287,649) (5,307,637)
------------ ------------ ------------
Financing activities:
Increase in deposits ............................................. 40,302,577 11,107,920 11,713,901
(Decrease) increase in other borrowed funds ...................... -- (905,036) 905,036
Proceeds from issuance of subordinated debt ...................... 1,510,000 -- --
Proceeds from issuance of common stock, net ...................... 20,000 1,858,105 844,784
Cash dividends ................................................... (229,194) -- --
------------ ------------ ------------
Net cash provided by financing activities .................. 41,603,383 12,060,989 13,463,721
Increase (decrease in cash and cash equivalents ................... 14,605,169 (5,293,547) 8,441,998
Cash and cash equivalents at beginning of year ..................... 10,084,689 15,378,236 6,936,238
------------ ------------ ------------
Cash and cash equivalents at end of year ........................... $ 24,689,858 $ 10,084,689 $ 15,378,236
============ ============ ============
Supplemental disclosures:
Interest paid .................................................... $ 3,075,960 $ 1,771,615 $ 1,578,240
Income taxes paid ................................................ 574,511 -- 7,500
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-11
<PAGE>
Unity Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
1. Organization and principles of consolidation:
The accompanying consolidated financial statements include the accounts of
Unity Bancorp, Inc. (the "Parent Company") and its wholly-owned subsidiary,
First Community Bank (the "Bank", or when consolidated with the Parent
Company, "the Company"). All significant inter-company balances and
transactions have been eliminated in consolidation.
Effective December 1, 1994, each certificate representing common shares of
the Bank was exchanged for an equal number of common shares of the Parent
Company and the Parent Company acquired all of the outstanding common
shares of the Bank. This exchange of shares has been accounted for as a
reorganization of entities under common control resulting in no changes to
the underlying carrying amount of assets and liabilities.
The Bank was incorporated in the State of New Jersey on July 27,1990. The
Bank was subsequently granted a charter by the New Jersey Department of
Banking and commenced operations on September 13, 1991 after purchasing the
deposits of two existing branches of another financial institution through
the Resolution Trust Corporation.
2. Summary of significant accounting policies:
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Securities
The Company prospectively adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115), effective January 1, 1994. SFAS 115 requires the
Company to classify its securities as: (1) held to maturity, (2) available
for sale and (3) trading.
Securities which the Company has the ability and intent to hold until
maturity are classified as held to maturity. These securities are carried
at cost adjusted for amortization of premiums and accretion of discounts.
Securities which are held for an indefinite period of time which management
intends to use as part of its asset/liability strategy, or that may be sold
in response to changes in interest rates, changes in prepayment risk,
increased capital requirements or other similar factors, are classified as
available for sale and are carried at market value. Differences between a
security's amortized cost and market value is charged/credited directly to
shareholders' equity, net of income tax effect. The cost of securities sold
is determined on a specific identification basis. Gains and losses on sales
of securities are recognized in the statements of income on the date of
sale.
The Company has not classified any of its securities as trading.
Loans
Interest is credited to operations primarily based upon the principal
amount outstanding. When management believes there is sufficient doubt as
to the ultimate collectibility of interest on any loan, the accrual of
applicable interest is discontinued.
Loan origination fees, net of direct loan origination costs, are deferred
and are recognized over the estimated life of the related loans as an
adjustment of the loan yield.
The Company prospectively adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (SFAS
114) effective January 1, 1995. As defined in SFAS 114, a loan is impaired
when, based on current information and events, it is probable that a
creditor will be unable to collect all amounts due according to the
contractual terms of the loan agreement. SFAS 114 requires that the
impairment of a loan be based on the present value of expected future cash
flows, net of estimated costs to sell, discounted at the loan's effective
interest rate. Impairment can also be measured based on a loan's observable
market price or the fair value of collateral, if the loan is collateral
dependent. If the measure of the impaired loan is less than the recorded
investment in the loan, the Company establishes a valuation allowance, or
adjusts existing valuation allowances, with a corresponding charge or
credit to the provision for possible loan losses. The effect of adopting
this new accounting standard was not material.
Loans held for sale are reflected at the lower of aggregate cost or market
value.
F-12
<PAGE>
Unity Bancorp, Inc. and Subsidiary
Allowance for Possible Loan Losses
The allowance for possible loan losses is maintained at a level management
considers adequate to provide for potential loan losses. The allowance is
increased by provisions charged to expense and reduced by net charge-offs.
The level of the allowance is based on management's evaluation of potential
losses in the loan portfolio, after consideration of prevailing economic
conditions in the Company's market area. Credit reviews of the loan
portfolio, designed to identify potential charges to the allowance, are
made during the year by management with the assistance of a loan review
consultant.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated
useful lives of the assets.
Sales and Service of Commercial Loans
The Company periodically sells certain loans to other financial
institutions. Gains on such sales are recognized at the time of sale in an
amount which approximates the present value of the difference between the
effective interest rate to the Company and the net yield to the investor,
excluding normal future loan servicing fees when applicable, over the
estimated remaining lives of the loans sold.
Serviced loans sold to other financial institutions are not included in the
accompanying consolidated statements of condition. The total amount of such
loans serviced, but owned by outside investors, amounted to approximately
$9,982,000 and $6,567,000 at December 31, 1995 and 1994, respectively.
Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). The
standard requires a change from the deferred to an asset and liability
method of computing deferred income taxes. Deferred income taxes are
recognized for tax consequences of "temporary differences" by applying
enacted statutory tax rates to differences between the financial reporting
and the tax basis of existing assets and liabilities. Prior years'
financial statements have not been restated to comply with the provisions
of SFAS 109. The effect of adopting SFAS 109 in 1993 was not significant,
except that the utilization of net operating loss carry forwards would have
been reflected as an extraordinary item in the accompanying consolidated
statements of income prior to the adoption of SFAS 109.
Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand, amounts due from banks
(including certificates of deposit) and Federal funds sold. Generally,
Federal funds are sold for a one-day period. At December 31, 1995 and 1994
certain certificates of deposit with maturities in excess of 90 days,
amounting to approximately $3,357,000 at both dates, were included in cash
and due from banks.
Net Income Per Share
Net income per share is computed based on the weighted average number of
common shares and common share equivalents outstanding during each year.
The weighted average shares have been adjusted retroactively for the effect
of stock dividends and stock splits.
3. Securities:
Information with regard to the Company's securities portfolio at December
31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Held to maturity
Obligations of U.S. Government agencies ........ $10,760,758 $ 8,457 $ (504,387) $10,264,828
Mortgage-backed securities ..................... 9,095,985 1,005 (97,503) 8,999,487
----------- ----------- ----------- -----------
Total held to maturity ....................... $19,856,743 $ 9,462 $ (601,890) $19,264,315
=========== =========== =========== ===========
Available for sale
U.S. Treasury securities ....................... $ 1,963,616 $ 13,478 $ 0 $ 1,977,094
Obligations of U.S. Government agencies ........ 8,210,971 72,757 0 8,283,728
Obligations of states and political subdivisions 1,360,000 6,147 (810) 1,365,337
Mortgage-backed securities ..................... 838,976 13,607 0 852,583
Corporate debt securities ...................... 3,547,211 40,629 0 3,587,840
FHLB stock ..................................... 237,700 0 0 237,700
----------- ----------- ----------- -----------
Total available for sale ..................... $16,158,474 $ 146,618 $ (810) $16,304,282
=========== =========== =========== ===========
</TABLE>
F-13
<PAGE>
Unity Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
1994 Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Held to maturity
U.S. Treasury securities $ 6,379,890 $ 430 $ (89,915) $ 6,290,405
Obligations of U.S. Government agencies 9,467,892 2,291 (1,111,049) 8,359,134
Corporate debt securities 2,907,515 0 (108,641) 2,798,874
Mortgage-backed securities 4,521,547 585 (629,387) 3,892,745
----------- ----------- ----------- -----------
Total held to maturity $23,276,844 $ 3,306 $(1,938,992) $21,341,158
=========== =========== =========== ===========
Available for sale
Obligations of U.S. Government agencies $ 2,043,650 $ 0 $ (93,503) $ 1,950,147
Mortgage-backed securities 4,633,171 0 (379,202) 4,253,969
Corporate debt securities 1,000,000 0 (4,825) 995,175
----------- ----------- ----------- -----------
Total available for sale $ 7,676,821 $ 0 $ (477,530) $ 7,199,291
=========== =========== =========== ===========
</TABLE>
The amortized cost and estimated market value of securities at December 31,
1995, by contractual maturity, are shown below.
Estimated
Amortized Market
Cost Value
----------- -----------
Held to maturity
Due after 1 year - 5 years $ 1,237,500 $ 1,215,501
Due after 5 years - 10 years 1,500,000 1,381,875
Due after 10 years 8,023,259 7,667,453
Mortgage-backed securities 9,095,984 8,999,486
----------- -----------
$19,856,743 $19,264,315
=========== ===========
Available for sale
Due in 1 year or less $11,683,570 $11,758,987
Due after 1 year - 5 years 3,398,228 3,455,012
FHLB stock 237,700 237,700
Mortgage-backed securities 838,976 852,583
----------- -----------
$16,158,474 $16,304,282
=========== ===========
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations without call or prepayment
penalties.
Proceeds from sales of securities were $501,779 in 1995 and $12,309,559 in 1993.
Gross losses on sales of securities for 1995 were $18,999. Gross gains (losses)
on sales of securities were $299,234 and ($38,667) in 1993. No securities were
sold during 1994.
During December 1995, the Company transferred securities held to maturity with a
carrying value of approximately $15,920,000 and an unrealized gain of
approximately $145,800 to available for sale. The transfers resulted from a
reassessment of the Company's investment strategies pursuant to the release of a
special report issued by the Financial Accounting Standards Board entitled "A
Guide to Implementation of Statement No. 115 on Accounting for Certain
Investments in Debt and Equity Securities." This report allowed the Company to
make a one time reclassification of securities within the categories without
tainting other securities held to maturity.
Securities with carrying values aggregating $300,000 were pledged to secure
public deposits at December 31, 1995.
F-14
<PAGE>
Unity Bancorp, Inc. and Subsidiary
4. Loans:
Loans outstanding by classification as of December 31, 1995 and 1994, are as
follows-
1995 1994
----------- -----------
Loans secured by real estate -
Residential properties $16,033,700 $ 9,514,489
Nonresidential properties 23,612,087 15,017,958
Construction loans 5,705,208 1,292,795
Commercial and industrial loans 9,125,192 6,951,838
Lease financing receivables 83,193 334,776
Loans to individuals 4,548,662 3,308,831
----------- -----------
$59,108,042 $36,420,687
=========== ===========
As of December 31, 1995 and 1994, loans accounted for on a nonaccrual basis
amounted to approximately $78,000 and $47,000, respectively. The interest income
that would have been recorded had these loans performed under the original
contract terms was not significant. At December 31, 1995, $262,000 in loans were
past due greater than 90 days but still accruing interest.
As of December 31,1995, the Bank's recorded investment in impaired loans,
defined as nonaccrual loans was $78,000 and the related valuation allowance was
$16,000. This valuation allowance is included in the allowance for possible loan
losses in the accompanying statement of condition.
As of December 31, 1995, approximately 77% of the Company's loans were secured
by real estate. As such, a substantial portion of the Company's borrowers'
ability to repay their loans is dependent on the economic environment of the
real estate industry in the Company's market area.
In the ordinary course of business, the Company may extend credit to officers,
directors or their associates. These loans are subject to the Company's normal
lending policy. An analysis of such loans, all of which are current as to
principal and interest payments, is as follows-
Balance at December 31, 1994 $ 2,127,506
New loans 3,670,954
Repayments (1,844,886)
-----------
Balance at December 31, 1995 $ 3,953,574
===========
5. Allowance for possible loan losses:
The allowance for possible loan losses is based on estimates and ultimate losses
may vary from current estimates. These estimates are reviewed periodically and,
as adjustments become known, they are reflected in operations in the periods in
which they become known.
An analysis of the change in the allowance for possible loan losses during 1995,
1994 and 1993 is as follows-
1995 1994 1993
--------- --------- ---------
Balance at beginning of year $ 380,191 $ 301,673 $ 133,603
Provision charged to expense 228,560 160,563 183,288
Loans charged-off (50,257) (82,045) (15,218)
Recoveries on loans
previously charged-off 3,437 0 0
--------- --------- ---------
Balance at end of year $ 561,931 $ 380,191 $ 301,673
========= ========= =========
6. Premises and equipment:
The detail of premises and equipment as of December 31, 1995 and 1994
is as follows-
1995 1994
----------- -----------
Land and building $ 631,966 $ 626,595
Furniture, fixtures and equipment 732,498 408,637
Leasehold improvements 116,332 21,400
----------- -----------
1,480,796 1,056,632
Less-Accumulated depreciation
and amortization (386,753) (242,409)
----------- -----------
$ 1,094,043 $ 814,223
=========== ===========
F-15
<PAGE>
Unity Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
7. Subordinated debt:
The Company issued subordinated debentures on February 1, 1995. The
debentures bear interest at 8 3/4%, payable quarterly and mature on
February 1, 1998. The debentures are callable at the option of the Company
at any time. The Company may also elect to convert the debentures to common
stock at an exchange ratio to be determined based on the market price of
the Company's stock at the time of conversion.
8. Shareholders' equity:
As discussed in Note 1, effective December 1, 1994, all common shares of
the Bank's stock outstanding were exchanged for common shares of the Parent
Company. Whereas the Parent Company's common stock has no par value or
stated value but the Bank's common stock has a par value of $5 per share,
this transaction resulted in an increase in common stock and a
corresponding decrease in additional paid-in capital in the amount of
$2,775,374.
9. Income taxes:
The components of the provision for income taxes are as follows-
1995 1994 1993
--------- --------- ---------
Federal:
Current $ 596,270 $ 233,386 $ 7,500
Deferred benefit (69,493) (68,229) 0
--------- --------- ---------
Total Federal 526,777 165,157 7,500
State 82,254 53,850 0
--------- --------- ---------
Total provision for
income taxes $ 609,031 $ 219,007 $ 7,500
========= ========= =========
A reconciliation between the reported income taxes and the amount computed
by multiplying income before taxes by the statutory Federal income tax rate
is as follows-
1995 1994 1993
--------- --------- ---------
Federal income taxes at
statutory rate $ 548,748 $ 331,485 $ 174,784
State income taxes, net of
Federal income tax effect 54,288 35,541 0
Utilization of net operating
loss carryforwards 0 (145,299) (167,284)
Other 5,995 (2,720) 0
--------- --------- ---------
Provision for income taxes $ 609,031 $ 219,007 $ 7,500
========= ========= =========
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of the Company's assets and
liabilities. The components of the net deferred tax asset at December 31,
1995 and 1994 are as follows-
1995 1994
--------- ---------
Provision for possible loan losses $ 172,902 $ 97,028
Unrealized (gain) loss on
securities available for sale (22,400) 191,000
Other, net (2,754) (17,087)
--------- ---------
$ 147,748) $ 270,941
========= =========
10. Commitments and contingencies:
Lease Obligations-
The Company leases its branch facilities under operating leases. Future
minimum rental payments under these leases are as follows-
1996 $110,000
1997 64,000
1998 28,000
Litigation-
The Company may, in the ordinary course of business, become a party to
litigation involving collection matters, contract claims and other legal
proceedings relating to the conduct of its business. In management's
judgment, the financial position or results of operations of the Company
will not be affected materially by the final outcome of any present legal
proceedings.
F-16
<PAGE>
Unity Bancorp, Inc. and Subsidiary
Commitments to Borrowers-
Commitments to extend credit are legally binding loan commitments with set
expiration dates. They are intended to be disbursed, subject to certain
conditions, upon request of the borrower. The Company was committed to
advance $8,780,000 to its borrowers as of December 31, 1995, which
commitments generally expire within one year.
Standby letters of credit are provided to customers to guarantee their
performance, generally in the production of goods and services or under
contractual commitments in the financial markets. The Company has entered
into standby letters of credit contracts with its customers totaling
$527,000 as of December 31, 1995, which generally expire within one year.
Other-
Deposits of the Bank are insured by the Savings Association Insurance Fund
(SAIF). The Bank is assessed premiums by SAIF semiannually based on the
collective experience of deposit institutions SAIF insures. Due to the
aggregate unfavorable experience, the SAIF has proposed a special one time
assessment of approximately 0.85% of qualifying deposits, the approval for
which must be received by the U.S. Congress prior to assessment. At
December 31, 1995 the Bank had approximately $111 million of deposits which
may be subject to such a special assessment, if and when enacted into law.
11. Regulatory capital:
Banking regulations provide that the Company must adhere to three minimum
capital requirements. These regulations require, at a minimum, Tier I
capital to risk-weighted assets of at least 4%, total capital of at least
8% of risk-weighted assets, and a leverage ratio of at least 3% to 5% of
adjusted assets. At December 31,1995, the Company had Tier I capital, Total
capital and leverage ratios of 10.77%, 11.48%, and 7.34%, respectively.
12. Fair value of financial instruments:
The Company adopted Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments" effective in 1995.
The statement requires that the Company disclose estimated fair values for
its financial instruments. The fair value estimates are made at a discrete
point in time based upon relevant market information and information about
the financial instruments.
Because no market exists for a portion of the Company's financial
instruments, fair value estimates are based on judgment regarding a number
of factors. These estimates are subjective in nature and involve some
uncertainties. Changes in assumptions and methodologies may have a material
effect on these estimated fair values. In addition, reasonable
comparability between financial institutions may not be possible due to a
wide range of permitted valuation techniques and numerous estimates which
must be made. This lack of uniform valuation methodologies also introduces
a greater degree of subjectivity to these estimated fair values.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value.
Cash and Federal Funds Sold- For those short-term instruments, the carrying
value is a reasonable estimate of fair value.
Securities-
For the held to maturity and available for sale portfolios, fair values are
based on quoted market prices or dealer quotes. If a quoted market price is
not available, fair value is estimated using quoted market prices for
similar securities.
Loans- The fair value of loans is estimated by discounting the future cash
flows using current market rates.
Deposit Liabilities-
The fair value of demand deposits and savings accounts is the amount
payable on demand at the reporting date. The fair value of fixed-maturity
certificates of deposit is estimated by discounting the future cash flows
using current market rates.
Subordinated Debt-
The carrying value is a reasonable estimate of fair value.
Unrecognized Financial Instruments-
At December 31, 1995, the Bank had standby letters of credit outstanding of
$527,000. The fair value of these commitments is nominal.
F-17
<PAGE>
Unity Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
At December 31, 1995, the bank had commitments to extend credit totaling
$8,780,000. The Bank does not charge a fee on these loan commitments and,
consequently, there is no basis to calculate a fair value.
The estimated fair value of the Company's financial instruments as of
December 31, 1995 is as follows-
Carrying Estimated
Amount Fair Value
------------ ------------
Financial assets-
Cash and Federal funds sold $ 24,689,858 $ 24,689,858
Securities held to maturity 19,856,743 19,264,315
Securities available for sale 16,304,282 16,304,282
Loans, net of allowance for
possible loan losses 58,496,833 58,428,286
Financial liabilities-
Deposits-
Demand 38,007,658 38,007,658
Savings 22,202,038 22,202,038
Time 50,787,928 50,472,202
------------ ------------
Total deposits 110,997,624 110,681,898
Subordinated debt 1,510,000 1,510,000
------------ ------------
13. Subsequent Events:
On September 26, 1996, the Company declared a 5 for 4 stock split effective
October 28, 1996. All share and per share information for all periods
presented in these financial statements has been adjusted to give effect
for this stock split.
F-18
<PAGE>
No person is authorized to give any information or make any representation other
than as contained in this Prospectus and, if given or made, such other
information or representations must not be relied upon as having been authorized
by the Company. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby to any
person in any jurisdiction where such offer would be unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create any implications that there had been no change in the
affairs of the Company since any of the dates of which information of the dates
of which information is furnished herein or since the date hereof.
UNITS
UNITY BANCORP, INC.
----------------
PROSPECTUS
----------------
___________________, 1996
TABLE OF CONTENTS
Page
----
Available Information................................................ 2
Prospectus Summary................................................... 3
Selected Consolidated Financial Data................................. 7
Special Considerations and Risk Factors.............................. 9
Recent Developments ................................................. 13
Use of Proceeds...................................................... 16
Market and Price Range of Securities................................. 16
Dividend Policy...................................................... 17
Capitalization....................................................... 17
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 19
Business............................................................. 44
Supervision and Regulation........................................... 49
Management........................................................... 54
Executive Compensation............................................... 57
Certain Transactions with Management................................. 60
Security Ownership of Certain Beneficial Owners and Management....... 60
Description of the Company's Securities.............................. 65
The Offering--Plan of Distribution................................... 69
Legal Matters........................................................ 70
Experts.............................................................. 70
Index to Consolidated Financial Statements........................... F-1
Consolidated Financial Statements.................................... F-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Ninth of the Certificate of Incorporation of the Company and
Section 145 of the Delaware General Corporate Law ("DGCL") provides that the
corporation shall indemnify its present and former officers, directors,
employees, and agents and persons serving at its request ("corporate agents")
against expenses, including attorney's fees, judgments, fines or amounts paid in
settlement, incurred in connection with any pending or threatened civil or
criminal proceeding involving the corporate agent by reason of his being or
having been a corporate agent if (a) the agent acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interest of
the corporation, and (b) with respect to any criminal proceeding, the corporate
agent had no reasonable cause to believe his conduct was unlawful.
With respect to any derivative action, the Company is empowered to
indemnify a corporate agent against his expenses (but not his liabilities)
incurred in connection with any proceeding involving the corporate agent by
reason of his being or having been a corporate agent if the agent acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation. However, only the court in which the proceeding
was brought can empower a corporation to indemnify a corporate agent against
expenses with respect to any claim, issue or matter as to which the agent was
adjudged liable for negligence or misconduct.
Under Section 145 of the DGCL, the Company may indemnify a corporate agent
in a specific case if a determination is made by any of the following that the
applicable standard of conduct was met: (i) the Board of Directors, or a
committee thereof, acting by a majority vote of a quorum consisting of
disinterested directors; (ii) by independent legal counsel, if there is not a
quorum of disinterested directors or if the disinterested quorum empowers
counsel to make the determination; or (iii) by the shareholders.
Section 145 of the DGCL further provides that a corporate agent is entitled
to mandatory indemnification to the extent that the agent is successful on the
merits or otherwise in any proceeding, or in defense of any claim, issue or
matter in the proceeding. In advance of the final disposition of a proceeding,
the Company may pay an agent's expenses if the agent agrees to repay the
expenses unless it is ultimately determined he is entitled to indemnification.
II-1
<PAGE>
Article Ninth of the Certificate of Incorporation of the Company also
provides that such indemnification shall not exclude any other rights to
indemnification to which a person may otherwise be entitled, and authorizes the
corporation to purchase insurance on behalf of any of the persons enumerated
against any liability whether or not the corporation would have the power to
indemnify him under the provisions of Article Ninth.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SEC Registration Fee................................................... 4,639
AMEX Filing Fee........................................................ 10,000
Accounting Fees and Expenses .......................................... 15,000
Printing and Engraving................................................. 35,000
Legal Fees and Expenses................................................ 50,000
Blue Sky Fees and Expenses............................................. 10,000
Transfer Agent and Registrar Fees...................................... 5,000
Miscellaneous Expenses................................................. 5,361
Total.............................................................. 135,000
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following information relates to securities of the Bank or the Company
issued or sold within the past three years which were not registered under the
Securities Act of 1933, as amended (the "Securities Act"):
(i) In 1994 before the reorganization of the Bank and the Company, the Bank
issued a total of 270,806 shares of common stock at prices ranging from $6.40 to
$7.40 per share. These shares were issued without registration under the
Securities Act in reliance upon the exemption provided by Section 3(a)(5) of the
Securities Act. No underwriters were involved in these issuances.
(ii) In February 1995, the Company issued a total of $1.5 million of 8.75%
Subordinated Notes due 1998 to 32 investors (the "1995 Note Holders"). These
Subordinated Notes were issued without registration under the Securities Act in
reliance upon the exemption provided by Section 4(2) of the Securities Act. No
underwriters were involved in these issuances.
(iii) In February 1996, the Company issued 157,276 shares of Common Stock
to the 1995 Note Holders in exchange for the 8.75% Subordinated Debentures due
1998 held by them. No commission or renumeration was paid directly or indirectly
by the Company for soliciting the exchange. The transaction was completed
without registration under the Securities Act in reliance upon the exemption
provided in Section 3(a)(9) of the Securities Act.
II-2
<PAGE>
(iv) In April 1996, the Company issued $2.1 million of 8.25% Subordinated
Notes due 1999 to directors and executive officers of the Company and the Bank
and their affiliates (the "1996 Note Holders"). This transaction was completed
without registration under the Securities Act in reliance upon an exemption
provided in Section 4(2) of the Securities Act. No underwriters were involved in
this transaction.
(v) In September 1996, the Company issued 201,000 shares of Common Stock to
the 1996 Note Holders in exchange for the 8.25% Subordinated Notes due 1999. No
commission or renumeration was paid directly or indirectly by the Company for
soliciting the exchange. The exchange was completed without registration under
the Securities Act in reliance upon the exemption provided in Section 3(a)(9) of
the Securities Act.
ITEM 27. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
3(i) Certificate of Incorporation of the Company, as amended(2)
3(ii) Bylaws of the Company(1)
4(i) Warrant Agreement/Form of Warrant(2)
4(ii) Form of Stock Certificate(2)
4(iii) 1994 Stock Option Plan for Employees(1)
4(iv) 1994 Stock Option Plan for Non-Employee Directors(1)
4(v) Stock Bonus Plan(2)
4(vi) Subscription Agreement
5 Opinion of McCarter & English
10(i) Lease Agreement (for main office)(2)
10 (ii) Lease Agreement for Flemington Branch Office; Addendums to
Lease and Lease for Parking(2)
10(iii) Lease Agreement for Springfield Branch Office(2)
10(iv) Lease Agreement for Scotch Plains Branch Office(2)
II-3
<PAGE>
10(v) 1994 Stock Option Plan for Employees and
1994 Stock Option Plan for Non-Employee Directors
(See Exhibits 4(iii) and 4(iv))(2)
10(vi) Change in Control Agreement(2)
10(vii) Stock Bonus Plan (See Exhibit 4(v))
21 Subsidiaries of the Registrant(2)
23(i) Consent of McCarter & English (See Exhibit 5)
23(ii) Consent of Arthur Andersen LLP
24 Power of Attorney(2)
27 Financial Data Schedule(2)
99 Form of Exchange Offer Letter of Transmittal
- ----------
(1) Incorporated by reference from Exhibits 2(a) to 99(b) from the Registrant's
Registration Statement on Form S-4, Registration No. 33-76392.
(2) Previously Filed.
II-4
<PAGE>
ITEM 28. UNDERTAKINGS
-- Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
-- In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
-- The undersigned registrant will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the small business issuer under Rule 44(b)(1) or (4)
or 497(h) under the Securities Act as part of this registration statement
as of the time the Commission declared it effective; and
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe it meets all of the
requirements for filing on Amendment No. 1 to this Registration Statement on
Form SB-2 and has duly authorized this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Clinton, State of New Jersey on November 4, 1996.
UNITY BANCORP, INC.
By: /s/ ROBERT VAN VOLKENBURGH
-------------------------------
Robert Van Volkenburgh
Chairman of the Board and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints any one of Robert Van Volkenburgh or James Hyman,
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Name Title Date
- ---- ----- ----
/s/ ROBERT VAN VOLKENBURGH
- --------------------------
Robert Van Volkenburgh Chairman of the Board, Chief November 4, 1996
Executive Officer and
Director (Principal
Executive Officer) November 4, 1996
/s/ JAMES HYMAN
- -------------------------
James Hyman President, Chief Operating
Officer and Director November 4, 1996
/s/ DAVID DALLAS
- -------------------------
David Dallas Director, Vice Chairman of November 4, 1996
the Board and Secretary
/s/ THOMAS MARESCA
- -------------------------
Thomas Maresca Chief Financial Officer
(Principal Financial and
Accounting Officer) November 4, 1996
II-6
<PAGE>
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
PAGE NUMBER
3(i) Certificate of Incorporation
of the Company, as amended(2)
3(ii) Bylaws of the Company(1)
4(i) Warrant Agreement/Form of Warrant(2)
4(ii) Form of Stock Certificate(2)
4(iii) 1994 Stock Option Plan for Employees(1)
4(iv) 1994 Stock Option Plan for Non-Employee
Directors(1)
4(v) Stock Bonus Plan(2)
4(vi) Subscription Agreement
5 Opinion of McCarter & English
10(i) Lease Agreement (for main office)(2)
10(ii) Lease Agreement for Flemington Branch
Office; Addendums to Lease and Lease for
Parking(2)
10(iii) Lease Agreement for Springfield Branch
Office(2)
10(iv) Lease Agreement for Scotch Plains Branch
Office(2)
10(v) 1994 Stock Option Plan for Employees and
1994 Stock Option Plan for Non-Employee
Directors (See Exhibits 4(iii) and 4(iv))
10(vi) Change in Control Agreement(2)
10(vii) Stock Bonus Plan (See Exhibit 4(v))
21 Subsidiaries of the Registrant(2)
23(i) Consent of McCarter & English (See
Exhibit 5)
23(ii) Consent of Arthur Anderson LLP
24 Power of Attorney(2)
27 Financial Data Schedule(2)
99 Form of Exchange Offer Letter of Transmittal
- ------------------
(1) Incorporated by reference from Exhibits 2(a) to 99(b) from the Registrant's
Registration Statement on Form S-4, Registration No. 33-76392. Exhibit
3(ii)
(2) Previously Filed.
<TABLE>
EXHIBIT 4(vi)
UNITY BANCORP, INC.
ORDER FORM FOR UNITS, EACH UNIT CONSISTING OF
OF ONE SHARE OF COMMON STOCK AND ONE WARRANT
TO PURCHASE ONE SHARE OF COMMON STOCK
<CAPTION>
Please read and complete this Order Form. Instructions are included on the reverse side of this form.
- -----------------------------------------------------------------------------------------------------
DEADLINE FOR DELIVERY: ______ p.m., Eastern Time, on __________________________, 1996
Please mail this Order Form in the enclosed envelope or hand-deliver to Unity Bancorp, Inc., c/o James Hyman, President, 64 Old
Highway 22, Clinton, New Jersey 08809. Unity Bancorp, Inc. is not required to accept copies this Order Form.
NUMBER OF UNITS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(1) No. of Units Price Per Unit Total Amount Due
________________ X $____________ = $___________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
PAYMENT FOR UNITS
- ------------------------------------------------------------------------------------------------------------------------------------
(2) [ ] Enclosed is a check or money order payable to Unity Bancorp, Inc. for $____________________________________.
- ------------------------------------------------------------------------------------------------------------------------------------
REGISTRATION OF CERTIFICATES (Please Print Clearly)
- ------------------------------------------------------------------------------------------------------------------------------------
(3) _________________________________________________________________ | (4) _____________________________________________________
(First Name) (M.I.) (Last Name) | Social Security #/Tax ID #
|
_________________________________________________________________ | (5) _____________________________________________________
(First Name) (M.I.) (Last Name) | Social Security #/Tax ID #
|
_________________________________________________________________ | _____________________________________________________
(Street Address) | (Daytime Phone)
|
_________________________________________________________________ | _____________________________________________________
(City) (State) (Zip) | (Evening Phone)
- ------------------------------------------------------------------------------------------------------------------------------------
ACKNOWLEDGEMENT AND SIGNATURE (VERY IMPORTANT)
- ------------------------------------------------------------------------------------------------------------------------------------
I(we) acknowledge receipt of the Prospectus dated _______________, 1996, and I(we) have read the terms and conditions described
therein (including the section entitled "Special Considerations and Risk Factors"). I(we) understand that, after receipt by Unity
Bancorp, Inc., this order may not be modified or withdrawn without the consent of Unity Bancorp, Inc. I(we) acknowledge that the
Units being ordered are not a deposit or savings account, are not federally-insured, and are not guaranteed by the federal
government. Under penalties of perjury, I(we) certify that (1) the Social Security #(s) or Tax ID #(s) given above is(are) correct;
and (2) I(we) am(are) not subject to backup withholding tax.
Please sign and date this form. Only one signature is required, unless authorizing a withdrawal from a First Community Bank deposit
account requiring more than one signature to withdraw funds. If signing as a custodian, corporate officer, etc., please include your
full title.
_________________________________________________________
Signature Date
QUESTIONS? Please call James Hyman, President,
Unity Bancorp, Inc., (908) 730-7630
_________________________________________________________
Additional Signature (if required) Date
THIS ORDER NOT VALID UNLESS SIGNED
- ------------------------------------------------------------------------------------------------------------------------------------
THE UNITS ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
</TABLE>
<PAGE>
UNITY BANCORP, INC.
ORDER FORM FOR UNITS, EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE WARRANT TO PURCHASE ONE SHARE OF COMMON STOCK
1. Fill in the number of Units you wish to purchase and the amount due. Unity
Bancorp, Inc. reserves the right to accept or reject any order received, in
whole or in part.
2. Check the appropriate box(es). Payment for Units may be made by check, bank
draft or money order payable to Unity Bancorp, Inc. Funds received will be
cashed immediately and deposited into a separate account established for
the purposes of this Offering.
3. Please CLEARLY PRINT the name(s) and address in which you want the stock
and warrant certificates registered and mailed. ONE STOCK CERTIFICATE AND
ONE WARRANT CERTIFICATE WILL BE GENERATED PER ORDER FORM. IF VARIOUS
REGISTRATION AND AMOUNTS ARE DESIRED ON VARIOUS CERTIFICATES, A SEPARATE
ORDER FORM MUST BE COMPLETED FOR EACH CERTIFICATE DESIRED.
4. Enter the Social Security Number or Tax ID Number of each of the registered
owners of the Units.
5. Be sure to include at least one phone number, in the event you must be
contacted regarding this Order Form.
6. Please check the one type of ownership applicable to your registration of
the Units. An explanation of each follows:
GUIDELINES FOR REGISTERING STOCK AND WARRANTS UNDERLYING THE UNITS
For reasons of clarity and standardization, the stock transfer industry has
developed uniform stockholder registrations which we will utilize in the
issuance of your Unity Bancorp, Inc. Stock and Warrant Certificate(s). If you
have any questions, please consult your legal advisor.
Stock and Warrant ownership must be registered in one of the following manners:
INDIVIDUAL: Avoid the use of two initials. Include the first given name,
middle initial and last name of the stockholder. Omit words of
limitation that do not affect ownership rights such as
"special account," "single man," "personal property," etc. If
the stock and warrants are held individually upon the
individual's death, the stock and warrants will be owned by
the individual's estate and distributed as indicated by the
individual's will or otherwise in accordance with law.
JOINT: Joint ownership of stock and warrants by two or more persons
shall be inscribed on the certificate with one of the
following types of joint ownership. Names should be joined by
"and"; do not connect with "or." Omit titles such as "Mrs.,"
"Dr.", etc.
JOINT TENANTS -- Joint tenancy with Right of Survivorship and
not as Tenants in Common may be specified to identify two or
more owners where ownership is intended to pass automatically
to the surviving tenant(s).
TENANTS IN COMMON -- Tenants in Common may be specified to
identify two or more owners. When stock and warrants are held
as tenancy in common, upon the death of one co-tenant,
ownership of the stock and warrants will be held by the
surviving co-tenant(s) and by the heirs of the deceased
co-tenant. All parties must agree to the transfer or sale of
shares and warrants held in this form of ownership.
UNIFORM TRANSFER
TO MINORS: Stock and warrants may be held in the name of a custodian for
a minor under the Uniform Transfers to Minors laws of the
individual states. There may be only one custodian and one
minor designated on a stock and warrants certificate. The
standard abbreviation of custodian is "CUST.", while the
description "Uniform Transfers to Minors Act" is abbreviated
"UNIF TRAN MIN ACT." Standard U.S. Postal Service state
abbreviations should be used to describe the appropriate
state. For example, stock and warrants held by John P. Jones
under the Uniform Transfers to Minors Act will be abbreviated:
JOHN P. JONES CUST SUSAN A. JONES
UNIF TRAN MIN ACT NJ
FIDUCIARIES: Stock held in a fiduciary capacity must contain the following:
1. The name(s) of the fiduciary:
-- If an individual, list the first given name, middle
initial, and last name.
-- If a corporation, list the corporate title
-- If an individual and a corporation, list the
corporation's title before the individual.
2. The fiduciary capacity:
-- Administrator
-- Conservator
-- Committee
-- Executive
-- Trustee
-- Personal Representative
-- Custodian
3. The type of document governing the fiduciary
relationship. Generally, such relationships are
either under a form of living trust agreement or
pursuant to a court order. Without a document
establishing a fiduciary relationship, your stock may
not be registered in a fiduciary capacity.
4. The date of the document governing the relationship.
The date of the document need not be used in the
description of a trust created by a will.
5. Either of the following:
The name of the maker, donor or testator
or
The name of the beneficiary
Example of Fiduciary Ownership:
JOHN D. SMITH, TRUSTEE FOR TOM A. SMITH
UNDER AGREEMENT DATED 6/9/74
EXHIBIT 5
November 4, 1996
Re: Unity Bancorp, Inc.
Registration Statement on Form SB-2
Unity Bancorp, Inc.
64 Old Highway 22
Clinton, New Jersey 08809
Dear Sirs:
We have acted as counsel for Unity Bancorp, Inc., a Delaware corporation
(the "Company"), in connection with the Registration Statement on Form SB-2
being filed by the Company with the Securities and Exchange Commission pursuant
to the Securities Act of 1933, as amended, relating to an aggregate of 401,500
Units, each Unit consisting of one share of common stock, no par value, of the
Company (the "Common Stock") and one warrant entitling the holder thereof to
purchase one share of the Common Stock (the "Warrants"), and 401,500 shares of
Common Stock purchasable upon the exercise of the Warrants.
In so acting, we have examined, and relied as to matters of fact upon, the
originals, or copies certified or otherwise identified to our satisfaction, of
the Certificate of Incorporation and By-laws of the Company and such other
certificates (including certificates of officers of the Company), records,
instruments and documents, and have made such other and further investigations,
as we have deemed necessary or appropriate to enable us to express the opinion
set forth below. In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter documents.
<PAGE>
Unity Bancorp, Inc.
November 4, 1996
Page 2
Based upon the foregoing, we are of the opinion that upon issuance and
delivery by the Company of the Common Stock and the Warrants which make up the
Units, such shares of Common Stock and the Warrants will be legally issued,
fully paid and non-assessable, and upon issuance and delivery of the Common
Stock issuable upon exercise of the Warrants, such Common Stock will also be
legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving the foregoing consent, we do not admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
Very truly yours,
/s/ McCARTER & ENGLISH
-----------------------------
McCarter & English
Exhibit 23(ii)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Unity Bancorp, Inc.
As independent public accountants, we hereby consent to the use of our report
and to all references to our firm included in Amendment No. 1 to this
Registration Statement No. 333-12565 on Form SB-2.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
November 6, 1996
UNITY BANCORP, INC.
LETTER OF TRANSMITTAL
EXCHANGE OF COMMON STOCK
FOR
8.25% SUBORDINATED NOTES
due April 1, 1999
Unity Bancorp, Inc.
64 Old Highway 22
Clinton, NJ 08809
I hereby agree to exchange $________ in aggregate principal amount
of the 8.25% Subordinated Notes due April 1, 1999 (the "Notes") of Unity
Bancorp, Inc. (the "Company") for shares of common stock of the Company, no par
value per share (the "Common Stock") at an exchange rate of 80 shares of Common
Stock per $1,000 principal amount of Notes on the terms and conditions contained
in the Exchange Offer Memorandum dated September 4, 1996, a copy of which has
been furnished to me and read by me.
I understand that there are substantial risks involved with an
investment in the Common Stock, as described in part under the heading "Risk
Factors" in the Memorandum.
I am presenting to the Company the certificates representing my
Notes with this Letter of Transmittal.
I understand that this Letter of Transmittal is non-revocable.
I further agree that my tender of Notes for exchange is subject to
the right of the Company to reject it in whole or in part. I acknowledge that no
representations have been made in connection with the Exchange Offer other than
those contained in the Memorandum. I understand that the shares of Common Stock
are not obligations of First Community Bank, are not bank accounts, savings
accounts or deposits and will not be insured by the Federal Deposit Insurance
Corporation (the "FDIC").
In connection with my investment in the Common Stock, I hereby
represent to the Company as follows:
1. I have, either alone or together with my advisors,
representatives and agents, adequate business knowledge and investment
experience to properly evaluate the risks of an investment in the Common Stock.
2. I hereby acknowledge and confirm that I have had an opportunity
to ask any and all questions I may have concerning the Company and its business
operations and that such questions have been answered to my complete
satisfaction. I also confirm that I have received all information requested by
me or by my
<PAGE>
agents or representatives, and that I have not relied upon any specific promise
or representation as to future performance, profits, return or appreciation on
my investment in the Common Stock.
3. I represent that the shares of Common Stock being acquired hereby
are being acquired by me for investment purposes only and not with a view
towards, or for resale in connection with, any distribution.
4. I acknowledge and understand that the shares of Common Stock
being acquired hereby are unregistered securities under the Securities Act of
1933 and must be held indefinitely unless they are subsequently registered under
the Act or an exemption from registration is available.
<PAGE>
INSTRUCTIONS FOR ISSUANCE OF COMMON STOCK
Please print or type the information set forth below. If shares of
Common Stock are to be issued in more than one name, please complete the
information set forth below for each name indicated. If shares of Common Stock
are to be issued to a fiduciary, please specify capacity, executor,
administrator, trustee, guardian, custodian, etc.
Common Stock to be issued as follows:
________________________________________ ______________________________________
PRINT/TYPE Name of Noteholder PRINT/TYPE Name of Noteholder
________________________________________________________________________________
Residence address/City State Zip Code Phone #
________________________________________ ______________________________________
Noteholder Social Security # Noteholder Social Security #
or Taxpayer I.D. number or Taxpayer I.D. number
Shares of Common Stock shall be registered as follows:
Name:___________________________________________________________________________
Address:________________________________________________________________________
Number of Shares:__________________
(If shares of Common Stock are to be issued in more than one
name, please specify whether ownership is to be as "Tenants in Common"; "Joint
Tenants with Right of Survivorship and Not as Tenants in Common"; or Under the
Uniform Gift to Minors Act ["______________________ Custodian for
_______________________, under the New Jersey Uniform Gifts to Minors Act"]).
________________________________________ ______________________________________
Noteholder Signature Noteholder Signature
(By signing, tendering Noteholder is acknowledging statements made elsewhere in
this Letter of Transmittal)
Date:____________________
